Tuesday, May 17, 2011

Ok, kids, look at the blackboard now, we’re going to learn a new word today.

The word is "reprofiling". And no, I think I know what you're thinking, but it has nothing to do with a CSI episode, or with the CIA, and not even with Dominique Strauss-Kahn (DSK), though that guy's profile has certainly changed a tad in recent days.

No, reprofiling is a term invented over the past few days by one or more negotiators at the table discussing how to hide the fact that Greece is disappearing into the Aegean Sea slowly but surely, a while longer. Come to think of it, perhaps DSK did think of the term from his new and conveniently humble Rikers Island abode. But still, that's somewhat beside the point for our intents and purposes.

A few steps back in history: Greece last year received a €110 billion bail-out from the EU and the IMF (I know, I know, DSK is/was the head of the latter). Today it is glaringly clear that €110 billion was never going to lift Athens out of its financial swamp. Which is why the usual suspects are back to the drawing board.

In normal days and circumstances, Greece would default on its debt. The parties holding that debt would reach a hard-fought agreement to take losses on various percentages of their claims, and the next morning, the sun would rise again, as it always has, over all 100,000 (crude estimate) or so Greek islands.

Not this time. This time, Greece is part of the EU and the Eurozone, and, more importantly, the country owes its debts to financial institutions all across the globe that can't afford the losses any hard-fought agreements would force upon them. Whether it's Wall Street banks, or the German Landesbanken, or French giants Paribas and Crédit Agricole, they're all tilting so close to the edge that any such loss recognitions might do them in.

It's not even just the Greek losses per sé that are the biggest issue, mind you. What's underlying the fear that pervades the financial classes is that any loss taken may open the monetary equivalent of the Morganza spillway, so to speak. A full-size Greek default, or debt restructuring in more opaque terminology, carries a very real danger of books having to be opened all across the board. Sort of like Morganza cubed.

Reportedly, Goldman Sachs and the Greek government engaged in some 13 currency swap deals over the past decade. Secretive, over the counter, backroom deals set up with one purpose only: hide the depths of the doldrums. And while it's impossible to gauge the exact "standing" of those specific deals, they are an indication of what is at stake.

German banks alone have €28 billion in Greek debt on their books. That does not include any swaps! A haircut such as that which would probably be required in a run-of-the-mill debt restructuring might be in the vicinity of 50% or more. Which would take €14 billion out of German banks' books. And many billions more out of other global banks. They would need to recapitalize, and some might not be able to do so.

But that’s not the worst part. Those same German banks carry €114.7 billion in Irish debt, and €146.8 billion in Spanish debt. That is still only the German banks. What British, French, Dutch and Spanish banks hide in their vaults at 100 cents on the dollar (or euro) is easily an order of magnitude more.

And that's how we get to our word of the day. Reprofiling.

Another bail-out would be A) useless and B) politically untenable. The logical next step, restructuring, risks the bankruptcy of an entire series of smaller and larger financial institutions. So something in between was needed. And that has become "reprofiling". Which in essence is a term devoid of any real meaning. But that doesn't matter much in a world in which accounting standards are routinely changed on the fly, and in which private losses are not recognized, but instead transferred to the public sector.

Since reprofiling doesn't mean anything, it can't be expected to achieve anything either, other than to add a few more weeks or months to the extend and pretend period that's been going on globally since 2008. So why do they do it? Simple: to transfer ever more losses to the public. To take an admittedly crude example: the above mentioned €28 billion exposure of German banks to Greek debt constitutes less than 9% of those same banks' total exposure to the PIGS economies. Of which Spain is by far the biggest liability.

Spain will soon, in all likelihood before the year, or even the summer, is over, require its first bail-out. That will take negotiations that will make the present Greece, Ireland and Portugal ones look like laid back sunny summer afternoon cocktail parties by the pool.

They can't do Spain. Spain will be certain to bring down banks, reputations, vast wealth and markets. But still, Spain, both the country and its banks, are in dire straits. And unless the millions of "overbuilt homes" it is home to are soon sold at (under the circumstances) impossibly high prices, the whip will come down on Madrid. And thereby on the international finance markets.

DSK, presently residing at Rikers Island, has been the global go-to-man in the European debt talks. He's made sure that no EU periphery nation has failed outright so far. It's the key role of the IMF, the World Bank and similar institutions these days. Keep the existing system afloat as long as possible at the expense of Joe and Jane Main Street, or whatever their names may be in other languages.

Everyone in the know has long since realized that the debts incurred in the golden gambling days can and will never ever be paid back. But as long as Joe and Jane don't know this, their money, and their children's, can be used to pay off the bookmakers.

That was DSK's role in the grand scheme of things. Now that he's gone, we may speculate about him having being trapped, or just feeling like an invincible sexual predator, or something along those lines, but what may be much more important is the possibility that the entire 3-year-old bail-out scheme, be it through TARP and a myriad of other Fed and Treasury programs in the US, or the wheelings and dealings of the European Central Bank and the IMF with the broke PIGS in Europe, might be reaching a preliminary phase change.

Though it's hard to say at this point. DSK's interim successor is a man named John Lipsky, whose main claim to fame is he was the IMF man in Chile under Pinochet. If you don't know what that entails, read Naomi Klein's Shock Doctrine. And all the other people mentioned as permanent DSK IMF successors are Goldman Sachs, JPMorgan, World Bank, BIS etc.

We need to ask ourselves why we allow these folks the control of what remains of our wealth, and the very control of our lives. There's this image of this incestuous clique that don't mean anyone no good but themselves. US historian Christopher Lasch called it "pathological narcissism", while others go straight for the "psychopath" jugular, but whether DSK is found guilty or not in this particular instance, the very idea that a guy who stays in a $3000 a night hotel suite can run for president of France for the Socialist Party kind of says it all, when it comes to being twice removed from the real world, doesn't it?

I see lots of people writing about how the IMF needs to change, or something, because it will have to play a major role in the financial problems of countries all over in the future, but I'm thinking it should just be absolved and abolished. The IMF has only ever served the needs of financial elites, like the World Bank has, and since the controlling interests behind both firmly control the politics of all relevant nations these days, why not put them by the side of the curb with all the other garbage?

You want reprofiling? Well, alright, let's have some true and genuine reprofiling, then. And if you’re stateside, and/or Greece is not your thing, why not take a look at Tim Geithner raiding US pension funds in order to avoid hitting the debt ceiling? Perhaps if anyone needs to be "reprofiled", it's him.

In 10 days, Washington will release its revised estimate of first-quarter economic growth. This figure, based on more complete data than were available when the first assessment was issued toward the end of April, will undoubtedly grab headlines.

It could affect everything from the Federal Reserve’s view on interest rates to corporate decisions about spending and the public’s evaluation of how well the Obama administration is managing the economy. Economists will issue a variety of learned opinions about what it all means. What most of them will not be saying is that the GDP figure is essentially meaningless.

Many of us instinctively distrust some (okay, a lot) of what governments tell us. Anyone who buys food or fuel these days has a problem with the oft-repeated official line that inflation is tame, so don’t worry about it. And we know unemployment just has to be worse than the official numbers show. But tell us GDP is growing at a faster clip than forecast, and we erupt into loud cheers.

Take Friday, when the Europeans revealed that first-quarter growth in the 17-country euro zone soared by more than 3 per cent on an annualized basis, led by much stronger-than-expected gains in Germany and France. The euro briefly jumped in value and analysts could barely contain their enthusiasm. "The data out of the euro zone … showed Germany and France’s GDPs are absolutely on fire," one excited currency strategist told Bloomberg.

But what if the number turns out be fake? That’s the provocative question posed by renowned U.S. money manager Rob Arnott, who makes a convincing argument that what passes for growth in the U.S. and a bunch of other deficit-ridden economies is less than it seems.

"It may be for real or it may be phony, based on increases in deficit spending," Mr. Arnott says of the latest European numbers. But while he’s unsure of euro-zone growth in a new age of austerity, the chairman of California-based Research Affiliates is absolutely certain that next week’s revised U.S. GDP number will be as bogus as a three-dollar bill. That’s because it will not take into account how much of the American expansion stems from the government’s deficit-spending binge.

"Gross domestic product is used to measure a country’s economic growth and standard of living. It measures neither," Mr. Arnott says flatly. "GDP measures spending. It does not measure prosperity. Unfortunately, the finance community and global centres of power are wedded to a measure that bears little relation to reality."

The problem, he argues, is that the GDP figure fed to the public does not distinguish between consumption that is covered by current income and that which is financed by deficit spending. He likens it to a family with too many credit cards. The more credit they use, the higher the "family GDP" climbs. But that expansion is unsustainable. Once they are forced to slice up their cards, their GDP must plunge.

That, in essence, is happening now in Britain, where tough government austerity measures, including deep spending cuts, are biting into what Mr. Arnott would characterize as the phony portion of its GDP. Canada and other countries determined to straighten out their fiscal situation could also face somewhat slower growth. "Let’s not pretend that a drop in GDP by reducing our borrowing and spending is painless," Mr. Arnott says. "It hurts just as much. For the family that slices up their credit cards, that drop in spending is just as painful as if they earned less money. But their financial health is on the mend. And that’s the difference."

People would have a truer gauge of the economy’s performance if the government provided what he calls "structural" GDP, which does not include debt-financed consumption. Currently, per capita GDP in the U.S. is not far off an all-time high. But excluding deficit spending, the real number is 10 per cent below the peak reached in 2007. Indeed, it has fallen back to levels not seen since 1998. "If structural GDP fails to grow as a consequence of our deficits, then deficit-spending has failed in its sole and singular purpose," he says. "What we find is that this recession is horrific."

He would also isolate private-sector GDP by subtracting government spending (excluding transfers). Lo and behold, this measure is also back at its 1998 level. What his calculations show is an economy "bottom bouncing and showing no signs of recovery. All we’re doing is borrowing more and spending more. That’s the only GDP growth we’ve got."

But surely, growth is growth, no? No, Mr. Arnott says, sipping a club soda during a brief respite from a hectic round of meetings with major pension funds and other institutional investors in Toronto. "Ultimately, the addiction to debt-financed consumption has got to come down."

What should an investor make of all this? "As deficit-spending is reined in, either voluntarily or because the capital markets choke on new debt, that could have an effect on capital markets as quantitative easing winds down," Mr. Arnott says. "It’s hard to identify uncertainties that could drive markets massively higher, but relatively easy to identify those that could drive them massively lower. "Which means now is a wonderful time to have a very defensive investment posture."

European finance ministers for the first time floated the idea of talks with bondholders over extending Greece’s debt-repayment schedule, saying that last year’s 110 billion-euro ($156 billion) rescue has failed to restore the country to financial health.

Europe would consider "reprofiling" Greek bond maturities as part of a package including stepped-up sales of state assets and deeper spending cuts, Luxembourg Prime Minister Jean-Claude Juncker said. "If all these conditions are fulfilled, we can discuss the question of reprofiling," Juncker told reporters late yesterday after chairing a meeting of euro-area finance chiefs in Brussels. "It’s not reprofiling or nothing. It’s measures, measures and measures, and then maybe reprofiling."

Introducing that prospect marks a break in Europe’s crisis- fighting strategy, with governments potentially shifting some costs to bondholders instead of relying on taxpayer-funded bailouts to stamp out the debt crisis. The talks were clouded by the absence of International Monetary Fund Managing Director Dominique Strauss-Kahn, who was denied bail in New York yesterday after being arrested on sexual-assault charges.

Previously, European governments had ruled out writedowns on privately held bonds before a permanent rescue fund is set up in mid-2013, and then only as a last-ditch option for countries deemed insolvent. A "large restructuring" remains taboo, Juncker said.

‘Not Terribly Attractive’Postponing Greece’s payments is "not terribly attractive to investors, but probably better than the other alternatives, in conjunction with further money, further bailout, which I think will come," Nick Beecroft, a senior markets consultant at Saxo Bank A/S, told Mark Barton on Bloomberg Television’s "Countdown." The euro was little changed today, at $1.4167 as of 8:30 a.m. in London. The currency has slipped from a 17-month high of $1.4940 on May 4 amid concern over the escalating debt crisis.

To be sure, striking an agreement with banks to reschedule Greece’s bond redemptions wasn’t discussed in the meeting, and finance ministers including Christine Lagarde of France and Didier Reynders of Belgium voiced opposition. "Restructuring, reprofiling -- off the table," Lagarde said. "We don’t want to do that," Reynders said.

Credit-Default SwapsNo officials from Germany, where lawmakers have suggested that investors share the cost of bailing out Greece, briefed reporters after the meeting. Discussions resumed today with all 27 European Union finance ministers focusing on the regulation of credit-default swaps and short sales.

Skepticism about Greece’s ability to repay its debt on time also raised concern that Ireland, recipient of aid worth 67.5 billion euros, might lose its battle to avoid a restructuring. After fighting the notion of a Greek insolvency for over a year, Juncker’s comments suggest Europe’s financial leaders are moving closer to the view of the 85 percent of international investors who, in a Bloomberg poll last week, said Greece is likely to default.

European officials "discuss all kinds of topics, including restructuring, but in public we are very reluctant about discussing restructuring and debating restructuring," Dutch Finance Minister Jan Kees de Jager said. The finance chiefs gave an inkling of a possible strategic revamp in yesterday’s approval of a three-year, 78 billion-euro aid program for Portugal, the third country to fall victim to the debt crisis.

‘Voluntary Basis’In addition to promising deficit cuts and the sale of state assets, Portugal will "encourage private investors to maintain their overall exposures on a voluntary basis," the ministers said in a statement. Portugal’s package still requires approval by all euro-area governments, with most putting it to parliament. Finance ministers also set the pricing of Portugal’s loans from EU’s two bailout funds. One of the funds will charge Portugal a markup of 215 basis points over its borrowing costs and the other will charge 208 basis points.

Official creditors in March granted the Athens government more time to repay its current loans, and are considering another extension in order to save Greece from becoming the first euro country to default. "We are in favor of extending the time period, of giving the Greeks more time, but the tranche can only be paid out if structural reforms are put on track," Austrian Finance Minister Maria Fekter said, referring to next month’s planned disbursement of 12 billion euros.

Ten-Year YieldsGreek bonds rallied today. Two-year yields fell 7 basis points to 24.83 percent as of 8:05 a.m. in London. Ten-year yields fell 9 basis points to 15.52 percent. The extra yield that investors demand to hold 10-year Greek debt instead of benchmark German bunds narrowed by 9 basis points to 12.41 percentage points. The ministers’ next meeting, on June 20, looms as a deadline to decide on that disbursement and on the shape of a follow-up aid package. It will be based on a progress report filed by a joint European-IMF team now in Greece.

Europe’s richer countries put Greece under pressure to go beyond current plans to sell 50 billion euros in government assets, potentially by setting up a new privatization agency. Faced with the fresh demands, Greece may delay tomorrow’s planned announcement of new measures in parliament. Greece’s debt will balloon to 157.7 percent of GDP in 2011 while the economy slumps for the third year, the European Commission forecast last week, fueling doubts whether the country will generate enough growth to pay its bills.

"We suggest that Greece is insolvent and that at some point the can cannot be kicked down the road any further," Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said in an "InBusiness with Margaret Brennan" interview on Bloomberg Television. "Ultimately debt holders will have to bear some of the burden as well."

Finance ministers said the IMF’s role as the contributor of a third of the bailout money for Greece, Ireland and Portugal won’t be hampered by Strauss-Kahn’s May 14 arrest on sexual- assault charges in New York. Strauss-Kahn, 62, who has denied the charges, was ordered held without bail by a New York judge. While he didn’t enter a plea yesterday in Manhattan Criminal Court, his lawyer has said he will plead not guilty. The Washington-based IMF was represented in Brussels by Nemat Shafik, a deputy managing director.

It couldn’t have come at a worse moment. A bailout of Portugal was being completed. Greece was tottering on the edge of a default. And where was the managing director of the International Monetary Fund, the man meant to be guiding the world economy through this chaos? Dominique Strauss-Kahn was in a cell in New York’s Rikers Island jail, awaiting his next court hearing on charges of sexually assaulting and attempting to rape a hotel housekeeper.

The trial of Strauss-Kahn will finish his career and transform the race for the French presidency, for which he was the leading candidate in next year’s election. It may well determine the fate of Europe’s single currency. There is no guarantee that the next head of the IMF will support the euro with the same determination that Strauss-Kahn did. Yet the most significant consequence of the scandal will be the effect it has on the IMF itself. It has become painfully obvious that giving the top job to a French, German or even British politician who happens to have some spare time on his hands is no longer good enough.

The IMF plays the most important role in the world economy right now. In the next decade, we will see multiple sovereign- debt crises stemming from the extravagance of the last decade. We may also witness the emergence of a new currency system. The IMF is the only body that can provide leadership on both fronts and that will require someone with different qualifications and ambitions. For this reason, it should select internal candidates and groom a new generation of leaders from within its own ranks.

Strauss-Kahn does, of course, remain innocent until proven otherwise. He denies all charges and his lawyer says Strauss- Kahn will plead not guilty. He is entitled to a fair trial, and may yet emerge from this scandal as a free man. Still, it seems unlikely he will remain in office after the case is over, even if he is acquitted. The reality is that the IMF will need a new managing director. John Lipsky, who is filling in for Strauss- Kahn, is due to leave his post as deputy at the end of August.

Tradition states that a European gets the job. More often than not, it goes to someone French. Normally, they are former bankers, finance ministers or policy makers. There won’t be any shortage of candidates in that mold. Christine Lagarde, the French finance minister, has already been linked to the job. So has Axel Weber, the former Bundesbank chief. Former U.K. Prime Minister Gordon Brown would love to run the IMF, though it seems unlikely he will secure the support of the British government.

Possible SuccessorsNo doubt we will be reading about the relative merits of Spanish central bankers and Swedish finance ministers fairly soon as the different campaigns get under way. Many of them would be perfectly good. Lagarde is smart and experienced, and has impressed plenty of people with her skill at helping put together the rescue packages for the euro. Weber demonstrated his independence and integrity at the Bundesbank.

The IMF now needs a new kind of leader. The top job should no longer be a consolation prize for someone who missed out on running the European Central Bank. It also shouldn’t be a stepping stone to the French presidency. Or an alternative to the golf course for defeated prime ministers. It should be the summit of a career, and not something you add to your resume on the way to something bigger.

There will never be a more important time to overhaul the IMF’s leadership culture. The sovereign-debt crisis is just starting. Greece, Ireland and Portugal are only the tip of a very large iceberg. Far bigger countries face huge fiscal challenges in the next 10 years. The IMF will have to anticipate and prevent defaults from turning into a more general financial crisis.

At the same time, the dollar’s role as a reserve currency is in long-term decline. With the rise of emerging economies, the U.S. can no longer maintain its position at the center of the financial system. At some point, a new reserve currency will be needed. It might be based on a basket of currencies or on gold. Perhaps it will be based on something no has even thought of yet. Whatever it is, the IMF will be pivotal to bringing it into being and stabilizing the global economy in the dangerous transition from one system to another.

To do that, the IMF needs to be allowed to develop its own leadership from within. Central banks aren’t run by former politicians or finance ministers parachuted into the role. Neither are big companies. They are led by men, and occasionally women, who have made their careers within those institutions. By the time they get the top job, they know the issues, and they know how they want to tackle them.

The IMF already has a talented pool of insiders. Whether the managing director comes from Europe doesn’t matter. What counts is whether he or she has the knowledge, expertise and vision to do the job. Strauss-Kahn may well leave his post in disgrace. Yet if his downfall can establish the point that the IMF needs a different kind of leader, he will have done his colleagues in Washington an unexpected service.

Crucial negotiations to reschedule Greek debts have been undermined by the arrest of International Monetary Fund (IMF) chairman Dominique Strauss-Kahn on charges of sexual assault, analysts have warned.

The euro fell to a seven-week low against the dollar on Monday after news of Mr Strauss-Kahn's detention in New York and stock markets in Europe opened down, with London slipping 0.4pc and German and French bourses falling sharply. The former French finance minister had been a key ally for the European Union as Greece, Ireland and Portugal all sought billion pound bail-outs to pay their debts.

Europe's finance ministers are due to meet in Brussels on Monday to hammer out the final details of a €78bn (£69bn) IMF-backed bail-out for Portugal and discuss further funding for Greece. Mr Strauss-Kahn had been due to brief German chancellor, Angela Merkel, on Sunday on the IMF's position as well as attend meetings in Brussels.

Economists said Mr Strauss-Kahn's absence could not have come at a more sensitive time. Concerns are growing that Greece will fail to hit IMF imposed targets to qualify for June's €3.3bn payment from last year's original €110bn bail-out. Simon Ward, chief economist at fund manager Hen-derson, said: "I would think that the Portuguese bail-out is pretty much locked down, but the question of additional support for Greece remains. This will complicate negotiations and I would expect the markets to react negatively."

Mr Ward said Mr Strauss-Kahn, who has denied the sexual assault charges, had been "crucial" in securing US-backed funding of the rescue deals. "He has steam-rollered any opposition to the European bail-outs and has been a crucial figure," said Mr Ward. "A person a bit less suppor-tive of the eurozone and we could potentially have already seen a default in one of those struggling economies."

US economist Nouriel Roubini said he had expected Mr Strauss-Kahn to back a rescheduling of interest payments on Greek debts rather than any further cash bail-out. The IMF, which extended almost $92bn (£57bn) in emergency loans last year, said it remained "fully functioning and operational" following the arrest of its chairman. John Lipsky, the IMF's first deputy managing director is its acting head. Mr Lipsky, who announced last Thursday that he would step down in August, on Sunday held an emergency board meeting in Washington.

The IMF has already come under pressure from the US Congress to be tougher on European debts. Mr Ward said the arrest could "open the door" to those wanting the IMF to rein in its lending. The fund has found its ability to offer cash in return for structural reforms, debt rest-ructuring and currency depreciation has been limited in Europe given the EU control of debts and the single currency.

Mr Strauss-Kahn was due to stand down next year. Traditionally, a European leads the IMF, with the US taking the lead at the World Bank. David Cameron has said the IMF should look outside Europe for its new leader, given the growth of India and China. Separately, Italian central bank governor Mario Draghi is on Monday expected to be approved as the next president of the European Central Bank.

The International Monetary Fund turned to John Lipsky when it was ordered to develop an early- warning system to prevent a repeat of the 2008 financial meltdown. Now, the IMF is calling on him to guide it through its own crisis.

Lipsky, 64, was named acting managing director yesterday after the fund’s chief, Dominique Strauss-Kahn, was charged with attempted rape and a criminal sex act on a New York hotel maid. Lipsky, who has been first deputy managing director since 2006, takes temporary leadership of the Washington-based IMF as it tries to stem the European sovereign-debt crisis and deal with Greece’s request for a bigger financial lifeline.

Lipsky, who once served as chief economist at JPMorgan Chase & Co. (JPM) and Salomon Brothers Inc. in New York and represented the IMF in Chile, is described by colleagues as a steady hand who can give the fund some stability in the aftermath of Strauss-Kahn’s arrest. His promotion came three days after the IMF said he would be leaving when his term as the No. 2 official ends on Aug. 31. That could result in an "awkward period," said Eswar Prasad, a senior fellow at the Brookings Institution in Washington.

"He can carry the ball effectively for the next few months, but I wouldn’t count on anything more from him," said Prasad, who worked with Lipsky as division chief of the IMF’s financial studies division. Given Lipsky’s plans to leave, he’s unlikely to push any "major initiatives," Prasad said.

Meeting on GreeceEuropean finance ministers will tackle Greece’s financing needs at meetings in Brussels today. Also on the agenda are the approval of 78 billion euros ($110 billion) in aid for Portugal and the nomination of Bank of Italy Governor Mario Draghi to be the next president of the European Central Bank. In late 2008, the Group of 20 finance ministers asked the IMF to develop a so-called Early Warning Exercise. The effort "assesses low-probability but high-impact risks to the global economy and identifies policies to mitigate them," the IMF said in a fact sheet last month.

Lipsky was a leader of the effort, emphasizing the importance of specifically identifying potential hazards. "I do not mean that the IMF should enter the crisis- prediction business -- as this potential role already is filled with an army of prognosticators -- but rather to undertake a more focused job of carefully identifying vulnerabilities and risks, and proposing specific remedies," he said in a December 2008 speech to the Council on Foreign Relations in New York.

Special Investment VehiclesFor example, special investment vehicles that banks including Citigroup Inc. (C) used to remove risky assets from their balance sheets "should have been flagged and dealt with before they caused the crisis," Lipsky said in the speech. Lipsky was forced to negotiate delicate situations as long as three decades ago, when he was the IMF’s resident representative in Chile from 1978 to 1980, during General Augusto Pinochet’s military dictatorship.

"This was a difficult period in Chile and he really managed things well," said Claudio Loser, former director of Western Hemisphere Affairs at the IMF. "The fund was very involved in the economy and he did well without compromising the position of the fund." Martin Redrado, former president of Argentina’s central bank, has followed Lipsky’s career since both worked at Salomon in the 1980s.

‘Talented Economist’"He was and is a very talented economist, probably one of top in the world right now," Redrado said in an interview in Buenos Aires. Lipsky was Salomon’s chief economist in the 1990s after working in London as head of the firm’s European Economic and Market Analysis Group.

He worked at the IMF for 10 years before joining Salomon in 1984, and helped lead the fund’s exchange-rate surveillance and analyzed global capital markets. He received a bachelor’s degree from Wesleyan University in Middletown, Connecticut, and a doctorate in economics from Stanford University near Palo Alto, California. Unlike Strauss-Kahn, Lipsky is "low-key" and doesn’t seek the spotlight, said Prasad, who described him as "capable" and "methodical."

Tom Block, a consultant and former head of government relations for JPMorgan, said he found Lipsky to be "very plugged into senior policy officials at Treasury, IMF and the Fed" when they were both working at the bank.

‘Special Adviser’When the IMF announced May 12 that Lipsky would be leaving his post at the end of August, it also said he would stay on as a "special adviser" through the G-20 summit in November at the request of Strauss-Kahn, 62. He was appointed by Strauss-Kahn’s predecessor, Rodrigo de Rato, at a time when the IMF was criticized as irrelevant. That was before the worldwide financial panic triggered by the bankruptcy of Lehman Brothers Holdings Inc. in September 2008.

Since then, the fund had its resources tripled by the G-20, has helped rescue economies from Ukraine to Greece and was assigned by leaders a host of new missions that prompted the institution to raise its budget last month. "He may not be by nature a politician," said Loser, the former IMF official, of Lipsky, whom he has known for at least 35 years. "But this may be a very good thing for the fund at this time."

Finance ministers agree €78 billion for Portugal at meeting overshadowed by absence of IMF head Strauss-Kahn

European governments are wrestling with the prospect of a fresh bailout for Greece a year after they committed €110bn (£125bn) to Athens, under pressure from Washington and Beijing to calm the markets and stabilise the euro.

The meeting of the 17 finance ministers of the eurozone was overshadowed by the absence of Dominique Strauss-Kahn, head of the International Monetary Fund and French presidential hopeful, who is facing sexual assault charges in New York. Strauss-Kahn has been a key player in the Greek drama and had been due to attend the first-night dinner in Brussels.

The ministers – along with the 10 EU finance ministers from outside the single currency, including chancellor George Osborne – agreed on a €78bn bailout for Portugal, the third rescue of a eurozone country in a year. They also signed off on the permanent eurozone bailout fund, the European stability mechanism, which is to shore up the currency from 2013. They were expected to agree that Mario Draghi of Italy be appointed the next head of the European Central Bank in Frankfurt.

With governments reeling from French socialist Strauss-Kahn's arrest on charges of attempted rape, the meeting in Brussels was also the first chance for ministers to discuss who would be the next head of the IMF in Washington; the post is traditionally held by a European.

The German chancellor, Angela Merkel, was the first to say that Europe should retain its prerogative over the post, amid calls that it was time the IMF job went to someone from the emerging economies. "We know that in the mid-term, developing countries have a right to the post of IMF chief and the post of World Bank chief," she said. "I think that in the current situation, when we have a lot of discussions about the euro, that Europe has good candidates to offer."

During the past year, Strauss-Kahn has been a decisive advocate of the bailouts, influential in the Greek emergency through his close relationship with socialist prime minister George Papandreou. Merkel surprised the rest of Europe last year by insisting the IMF play a central role in the bailouts, with the fund putting up a third of the €750bn rescue pot.

While Greece was expected to plead for more help last night, no decisions were expected for several weeks. The European commission said new "arrangements" were possible, with the options including a combination of cutting the interest rate on the bailout money, extending the repayment terms and topping up the loans by up to €60bn. But the emphasis in Brussels and EU capitals was on first urging greater austerity on Athens. Papandreou has been told he will have to show convincingly that he is committed to selling off Greek public assets through a radical privatisation programme before the eurozone will return to his rescue.

"We will discuss Greece but not conclusively," said Jean-Claude Juncker, Luxembourg's prime minister and president of the eurozone grouping. "We will be informed by the IMF, the European Central Bank and the European commission and then we will see."

This troika has been in Greece for the past week assessing the government's adherence to the savage programme of spending cuts and is said to be unhappy with what it has found. The next tranche of the bailout, €12bn, is due to be disbursed next month but there are threats it could be withheld.

The threats prompted Greek media reports at the weekend that pensions and teachers' and civil servants' wages could go unpaid next month if the money did not arrive. But eurozone governments have repeatedly emphasised in the past fortnight that Greece will not be allowed to default on its mountain of debt, making it unlikely that the €12bn will be retained.

Diplomats in Brussels and German officials made it clear the US and China were stepping up pressure on the EU to resolve the Greek dilemma, exasperated by the mixed signals from European capitals that have led to turmoil on markets and fresh questions about the euro's viability. An emergency, supposedly secret, meeting in Luxembourg 10 days ago of the French, German, Spanish and Italian finance ministers, which sparked a panic about a possible Greek default, was said to have been the direct result of transatlantic pressure.

At meetings of global finance officials in Washington last month, according to diplomats in Brussels, the Americans, Chinese and Canadians voiced their irritation with European indecision and demanded action to calm the markets. "The US, Canada, and Beijing told the EU: You've got to get this done to stop the speculation," a diplomat said.

It gives me no pleasure at all to jump up and down on Dominique Strauss-Kahn's grave. Nor should we yet presume him entirely dead. The man must be presumed innocent until proven guilty, and in any event, there is still some chance that the whole sordid affair turns out to have been a political set-up, in which case he might even emerge from this bizarre scandal with credit and sympathy.

Yet it is about time Europe's ownership of the International Monetary Fund, and particularly France's apparently divine right to the top job, was brought to a close. If Mr Strauss-Kahn's nemesis in a New York hotel room loosens Europe's grip, then that may be no bad thing.

Whatever the truth of otherwise of the allegations, Mr Strauss-Kahn's spectacular fall from grace is widely seen as a near catastrophe both for the IMF and the delicate negotiations around further rescue packages for the stricken eurozone periphery. This it is definitively not. To the contrary, it might even bring about a rethink of the currently doomed strategy of throwing good money after bad.

By convention, the position of IMF managing director has always gone to a European. What's more, no fewer than four out of the 10 managing directors since the war have been French. There's nothing wrong with that as such. France's Grande Ecoles have a long tradition of churning out impressively multi-lingual and well connected international policy makers of this sort. Few are better trained or suited to straddling the often conflicting demands of American, European and Asian governments.

As it happens, Mr Strauss-Kahn took a somewhat unorthodox route to the top, with spells at both Harvard and Stanford. But that in a sense made him even more appropriate for the role. A man of formidable intellect and political skill, he's managed to bring an unprecedented degree of international vision and authority to the job. The financial crisis gave him his stage, and he took it. Under his watch, the IMF has been transformed from frequently mocked irrelevance to international crisis manager par excellence, with a trillion dollar balance sheet and a powerful voice in almost every aspect of the international debate.

Yet he has in a sense been almost too successful, and though it seems unlikely his demise will have any immediate effect on the European bailouts, it's plain enough that the whole process is in desperate need of fresh thinking. Mr Strauss-Kahn's departure provides that opportunity. Not that Angela Merkel, the German Chancellor sees it that way. There is no vacancy yet, she rightly pointed out on Monday, but she also made clear that Europe won't be giving up its prerogative when there is one.

Now of course, Mr Strauss-Kahn was shortly expected to leave the IMF anyway to fight for the French presidency, which very probably he would have won. But the hot favourite to step effortlessly into his shoes was the current French finance minister Christine Lagarde. She would have continued in much the same vein.

She too would have bent the IMF to the apparently sole purpose of holding the European project together. I don't want to say that the European bailouts, which Mr Strauss-Kahn has so generously supported with IMF money and expertise (that's partly our money, by the way), were definitively the wrong approach. They may at least have bought Europe a little time. But they certainly don't seem to be succeeding as hoped. Bailing out Greece and Ireland failed to stop the contagion spreading to Portugal, while Greece has now returned, cap in hand, for even more.

There is, moreover, a quite obvious reason for this failure. An IMF rescue is normally conditional on devaluation to restore competitiveness, and or a sovereign restructuring to put debt back on a sustainable footing. The single currency prevents devaluation, while the shock to the European banking system of a restructuring is judged too big a risk to contemplate. Far from solving the crisis, the bailouts have therefore virtually guaranteed a rolling series of periphery nation crises into the indefinite future. The German Chancellor believes this makes it vital that Europe maintains its grip on the top IMF job. If not Christine Lagarde, then maybe Axel Weber, the former Bundesbank chief.

Mmmm. In fact, Mr Straus-Kahn's ignominious end should be seen as a way of breaking with precedent and appointing a non-European capable of seeing things in a less partial light. The trouble with Christine Lagarde is the same as Mr Strauss-Kahn – she's part of the single currency establishment and she's determined that for now there will be neither debt restructuring nor exits.

The reasons for this intransigence are both understandable and well rehearsed. The European Central Bank holds a very considerable proportion of Greece's national debt as collateral against funding. Direct asset purchases have further increased the ECB's exposure. If Greece were either to restructure, or leave the euro, these holdings would be correspondingly devalued and the ECB would be bust. The same goes for a number of European banks with large holdings of Greek sovereign debt, and indeed the Greek banking system as a whole and some of the country's main pension funds.

They've not been able to sell the debt for fear of crystalising the losses, which would destroy their capital, and thereby causing a Lehman style crisis of confidence in financial markets. So the policy has been to keep the distressed sovereigns afloat for long enough to allow these positions to be worked off in an orderly way. Unfortunately for the policy makers, political support for further rescue packages is fast ebbing away. The process has therefore become as much a race against time – to buttress the system with fresh loans before angry voters call a halt – as playing for time.

Economic success in the eurozone core, with German economic output back above pre-crisis levels and France not far behind, has helped defuse political opposition to some degree, but it has brought with it a further headache – pressure from the Germans for rising interest rates. What's good for the core is very bad indeed for the depression engulfed periphery. Only the Portugese bailout was formerly rubber stamped yesterday. Greece has to wait its turn. The price is going to be harsh - not just further fiscal austerity, but very likely some form of burden sharing too. This is most likely to take the form of maturity extension.

In the absence of such action, holders of the debt would be able to realise their capital without loss on maturity, leaving the costs of eventual restructuring to fall heavily on the IMF and the European Financial Stability Mechanism. It's all getting too intractable for words. There appears to be no workable solution that holds the whole thing together. As the German Chancellor has said, the European view is that the IMF needs a European at the helm to look after Europe's interests and help the euro navigate its way through the storm. Mr Strauss-Kahn filled that role. He was a sort of cuckoo in the nest, crowding out all other concerns for the IMF.

Whatever Mr Strauss-Kahn's innocence or otherwise, it's now impossible for him credibly to carry on. Even if cleared, there's a history there which he'll find impossible to counter. A power vacuum has opened up, which may for the first time allow for the appointment of a non European, perhaps even someone from the developing world. It's unlikely they'll look as kindly on the begging bowl from already rich and privileged economies as Mr Strauss Kahn did.

Perhaps it's time for David Cameron to swallow his pride and support Gordon Brown's candidature. As a non member of the euro, the UK would make an interesting compromise choice. Only kidding.

As EU finance ministers prepare for a meeting on the Greek crisis, George Papandreou insists: 'To ask us for an island or a monument as a guarantee is nearly an insult'

Greece's prime minister has hit out at fellow European nations for demanding "islands or monuments" as security for bailout loans ahead of a gathering of European finance ministers in Brussels on Monday to discuss the country's ailing finances.

Despite the conviction in financial markets that Greece's debts are unsustainable and will ultimately have to be restructured, eurozone ministers appear determined to top up last year's €110bn (£96bn) rescue package while forcing the beleaguered country into an ever tighter fiscal squeeze.

Prime minister George Papandreou gave a hint on Saturday of his frustration over the terms being discussed by creditor nations, which include Germany and France, by suggesting that they might demand a mortgage over Greece's historic antiquities – or even a lien over some of the country's Aegean islands. "I want to add one thing on which we are very sensitive: to ask us for an island or a monument as a guarantee is nearly an insult," Papandreou told Italy's Corriere della Sera newspaper. "The people expect our word and our actions are a sufficient guarantee."

Athens has announced a list of state assets, from airports to motorways, that will be sold off to raise €50bn over four years, but there are concerns that the process has stalled. The country will come under pressure to step up austerity measures in exchange for a fresh bailout at Monday's meeting. Michael Derks, chief strategist at broker FxPro, said eurozone countries are reluctant to loosen the terms of loans: "They don't want a restructuring, so they're going for the Band-Aid approach. Europe will probably say, 'Here's some extra money, but get on with the asset sales faster, then pay us back.'"

Officials from the European Commission and the International Monetary Fund are expected to complete their latest assessment of the austerity programme on Wednesday. But Ollie Rehn, the EU's monetary affairs commissioner, pre-empted its findings on Friday, warning "additional measures" would be needed after the latest forecasts showed Athens's debts would hit 166% of GDP next year, much worse than previously thought.

A new rescue package – involving tough new conditions – could be announced within a fortnight. Dominique Strauss-Kahn, the IMF's managing director, will travel to Berlin today to discuss the options with German chancellor Angela Merkel. George Osborne has won an assurance from his EU counterparts that Britain would not be forced to contribute to any new bailout.

A growing number of analysts now believe the ultimate outcome of the ongoing debt crisis will be that one or more countries – Greece being the first – will eventually leave the single currency. "The longer this goes on, the more you increase the likelihood of serious damage to the relationship between the member states, and the more you risk the erosion of what remains a fairly sturdy consensus in favour of membership," said Simon Tilford, chief economist at the Centre for European Reform.

With the greatest respect, the Western world is monitoring your efforts to master your country’s debt crisis. No other democratic country has ever managed anything like that in peacetime. You are shrinking the state apparatus; you are fighting corruption; you are teaching your fellow countrymen how to become honest tax-payers.

You are a modern hero. You are attempting the impossible. As the son of a persecuted and ostracized politician who was chased by the military junta you grew up close to danger. When the officers were looking for your father who was hiding in the attic, they threatened you by putting an unlocked pistol to your forehead and challenged you to betray your father. You denied your father’s presence until he, worried about his son’s life, left his hiding place.Later you fled with him to America where you spent your adolescence. You are alarger-than-life-character.

Preceding governments almost ruined your country. Debts amounting to 340 billion Euros are burdening the Greek state,equaling 155 times the profit of the 60 largest companies of your country and 1.5 times the amount of debts the Maastricht Treaty allows. A year ago, this newspaper, Germany's biggest Business Daily, appealed to the public to buy Greek government bonds in order to give to the country what Greece needs just as urgently as money: confidence. We also wanted to assist in breaking through the negative spiral of growing doubt and increasing interest rates. Everyone who granted you guarantees and loans wanted it, the European Union, the International Monetary Fund, the heads of state and government.

But since then, the spiral has picked up in speed instead of slowing down. In May 2010 the interest rate at which your country was given money on a ten year basis was at eight per cent. Today, it is at 16 per cent. And in all probability, it will be going up further. The bitter truth to which you and all parties who wanted to help Greece have to admit is that the help doesn’t help. Your country is getting deeper and deeper into the mess. Debts are growing, the gross national product will decrease by at least three per cent in 2011. But it would have to grow by three per cent instead if you were to lower your debt to the allowedlimit until 2040. This is becoming more and more unrealistic. You can’t starve and build up your muscles at the same time.

The truth that Greece has to cut back and save has turned into an untruth. The right thing has turned into the wrong thing. You already cut pensions, lowered the salaries of civil servants by 30 per cent and raised the prices of gas by almost 50 per cent. You can’t restore the health of your country by saving. And the European Union can’t restore your country’s health by again and again injecting new loans.

Soon, the day will come when the tortured body will surrender. The Greek construction industry already shrank by 70 per cent. Sales of car dealers sank by half. A daily export volume of 50 million Euros Greece is achieving far too little. Soon the day will come which investors fear in their nightmares. Then the word "insolvency" will be on everyone’s lips.

But it is also the day when a new truth will be born: Don’t save but invest, they will tell you – so that the Greek economy will grow again. Do not service debt with debt, you then will be recommended, but spread out the debt service, cut it and maybe even completely suspend it for a while. It will be a day of impositions, especially for those who lendmoney to you and your people. Financial markets will grind to a halt in horror – and then they will turn to embrace the future. Because Argentina in 2001, Mexico at the beginning of the eighties and Germany after World War II taught us that there is a life after death - at least, in the case of highly indebted states.

Mr. Papandreou, so far, you attempted the impossible. Now youshould do the possible. Just as you deceived the officers as a boy and denied to know where your father was hiding you now must repudiate the pride of the Greeks - in order to save your country. Come to meet the new uncomfortable truth before it knocks at your door. It’s already on its way.

High in the hills of Arcadia, in a big stone house on the edge of the village of Andritsaina, overlooking verdant pastures and a valley beyond, a group of young Athenians are busy rebuilding their lives. Until recently Andritsaina was not much of a prospect for urban Greeks. "But that," said Yiannis Dikiakos, "was before Athens turned into the explosive cauldron that it has become. We woke up one day and thought we've had enough. We want to live the real Greece and we want to live it somewhere else."

Piling his possessions into a Land Rover and trailer, the businessman made the 170-mile journey to Andritsaina last month. As he drove past villages full of derelict buildings and empty homes, along roads that wound their way around rivers and ravines, he did not look back. "Athens has failed its young people. It has nothing to offer them any more. Our politicians are idiots … they have disappointed us greatly," said Dikiakos, who will soon be joined by 10 friends who have also decided to escape the capital.

They are part of an internal migration, thousands of Greeks seeking solace in rural areas as the debt-stricken country grapples with its gravest economic crisis since the second world war. "It's a big decision but people are making it," said Giorgos Galos, a teacher in Proti Serron on the great plains of Macedonia, in northern Greece. "We've had two couples come here and I know lots in Thessaloniki [Greece's second biggest city] who want to go back to their villages. The crisis is eating away at them and they're finding it hard to cope. If they had just a little bit of support, a little bit of official encouragement, the stream would turn into a wave because everything is just so much cheaper here."

The trickle into Proti Serron might have gone unnoticed had the village not also been the birthplace of the late Konstantinos Karamanlis who oversaw the nation's entry into the then European Economic Community in 1981. An alabaster white statue of the statesman in the village square is adorned with the words: "I believe that Greece can change shape and its people their fate."

Nearly sixty years after they were uttered, a growing number of Greeks, at least, are beginning to wonder whether the old man was right. The drift towards the bright lights of the big cities were by Karamanlis' own admission one of the great barometers of the country's transition from a primarily agricultural society into an advanced western economy.

This week, as the IMF and EU debated ways of trying to re-rescue Greece and observers openly wondered whether the country would have to leave the euro, Greece appeared more adrift than ever, tossed on a high sea of mounting anger and civil disobedience from people who have lost trust in their politicians, and at the mercy of markets that refuse to believe it can pull itself back from the brink of bankruptcy. "The reality is that these people, they are in deep shit," the managing director of the IMF, Dominique Strauss-Kahn said recently. "If we had not come they would have fallen into the abyss. Two weeks later the government would not have been able to pay civil servants' wages."

Ironically, it is the medicine doled out under last year's draconian EU-IMF €110bn (£96bn) rescue programme, implemented to modernise a sclerotic economy, that has made their lot worse. Twelve months of sweeping public sector pay and pension cuts, massive job losses, tax increases and galloping inflation have begun to have a brutal effect. GDP is predicted to contract by 3% this year – making Greece's the deepest recession in Europe.

In Athens, home to almost half of Greece's 11 million-strong population, the signs of austerity – and poverty – are everywhere: in the homeless and hungry who forage through municipal rubbish bins late at night; in the cash-strapped pensioners who pick up rejects at the street markets that sell fruit and vegetables; in the shops now boarded and closed and in the thousands of ordinary Greeks who can no longer afford to take family outings or regularly eat meat.

"We've had to give up tavernas, give up buying new clothes and give up eating meat more than once a week," said Vasso Vitalis, a mother-of-two who struggles with her civil servant husband to make ends meet on a joint monthly income of €2,000.

"With all the cuts we estimate we've lost around €450 a month. We're down to the last cent and, still, we're lucky. We've both got jobs. I know people who are unemployed and are going hungry. They ask family and friends for food," she sighed. "What makes us mad is that everybody knew the state was a mess but none of our politicians had the guts to mend it. It was like a ship heading for the rocks and now the rocks are very near."

Greeks also know that with their economy needing another financial lifeline, and few willing to lend to a country in such a parlous state, it will also get much worse before it gets better."In the past, the future always implied hope for Greeks but now it implies fear," said Nikos Filis, editor of the leftwing Avgi newspaper. "Until this week people thought that with all the measures the crisis would be over in a year or two. Now with the prospect of yet more austerity for more aid, they can't see an end in sight."

With unemployment officially nudging 790,000 – although believed to be far bigger with the closure of some 150,000 small and medium-sized businesses over the past year – there are fears that Greece, the country at the centre of Europe's worst financial debacle in decades, is slipping inexorably into political and social crisis, too. Rising racist tensions and lawlessness on the streets this week spurred the softly spoken mayor of Athens, Giorgos Kaminis, to describe the city as "beginning to resemble Beirut".

Yannis Caloghirou, an economics professor at the National Technical University of Athens, said: "Greece has become a battleground, at the EU level where policymakers have made the crisis worse with their lack of strategy and piecemeal approach, and among its own people who no longer have trust in institutions and the ability of the political system to solve the situation. My concern is that the country is slipping into ungovernability, that ultra-right groups and others will grab the moment."

Nineteen months into office the ruling socialists, riven by dissent and increasingly disgust over policies that ideologically many oppose, are likewise beginning to show the strain of containing the crisis, with the prime minister, George Papandreou, being forced publicly to whip truculent ministers into line.

A mass exodus of the nation's brightest and best has added to fears that in addition to failing one or perhaps two generations, near-bankrupt Greece stands as never before to lose its intellectual class. "Nobody is speaking openly about this but the prospects for the Greek economy are going to get much worse as the brain drain accelerates and the country loses its best minds," said Professor Lois Lambrianidis, who teaches regional economics at the University of Macedonia.

"Around 135,000, or 9% of tertiary educated Greeks, were living abroad and that was before the crisis began. They simply cannot find jobs in a service-oriented economy that depends on low-paid cheap labour." Just as in Arcadia where the young are choosing to start anew, Greece, he says, needs to rebuild itself if it is to survive its worst crisis in modern times.

His face contorted with anguish, Anargyros D. recounted how he had lost everything in the aftermath of the Greek economic collapse — the food-processing factory founded by his father 30 years ago, his house, his car, his Rolex, his pride and now, he said, his will to live.

"Many times I have thought of taking my father’s car and driving it into a wall," he said, declining to give his last name because he was reluctant to draw attention to himself under these circumstances. Hunched over and shaking, he sat last week in the spartan office of Klimaka, a social services organization here that provides help to the swelling numbers of homeless and depressed Greek professionals who have lost their jobs and their dignity. "We were the people in Greece who helped others," he said. "Now we are asking for help."

It has been one year since Greece avoided bankruptcy when Europe and the International Monetary Fund provided a 110 billion euro ($155 billion) bailout. While no one expected the country to reverse its sagging fortunes quickly, the despair of Greeks like Anargyros D. reflects a level of suffering deeper than anyone here had anticipated.

Economists are predicting a 4 percent contraction in gross domestic product this year, and the data support the pessimism. Cement production is down 60 percent since 2006. Steel production has fallen, in some cases more than 80 percent in the last two years. Analysts say that close to 250,000 private sector jobs will have been lost by the end of the year, pushing the unemployment rate above 15 percent.

With headlines shouting of credit rating downgrades, panicky Greeks are taking their money from banks. Greece lost 40 billion euros of deposits last year, and bankers say withdrawals have increased recently.

These struggles have again made Greece an urgent matter for the 17-nation euro zone, whose finance ministers are to meet on Monday to discuss Greece and the debt crisis that has defied Europe’s yearlong efforts to contain it. On the table will be whether Greece, which is now projected to miss its deficit target by as much as two percentage points of G.D.P. this year, will be granted another round of loans totaling as much as 60 billion euros, and what further budget cuts would be required in return.

But there is serious debate about whether this kind of prescription — subjecting Greece to more cuts and sacrifice in order to justify a second installment of funds from a reluctant Europe — is the right one.

This form of remedy violates two basic economic principles, according to Yanis Varoufakis, an economics professor and blogger at the University of Athens. "You do not lend money at high interest rates to the insolvent and you do not introduce austerity into a recession," he said. "It’s pretty simple: the debt is going up and G.D.P. is going down. Have we not learned the lesson of 1929?"

The arrest on Saturday of Dominique Strauss-Kahn, the head of the I.M.F., on charges related to sexual assault could create new uncertainty about a push for more severe austerity. Mr. Strauss-Kahn generally favored a less onerous approach, and if he is forced to resign it is possible that tougher conditions preferred by Germany will be imposed.

But while the debate over how to fix the Greek economy has played out in public, the ways in which this slump is tearing at the country’s social fabric are less well known. The transformation has been jarring to a citizenry long accustomed to a generous welfare state. Social workers and municipal officials in Athens report that there has been a 25 percent increase in homelessness. At the main food kitchen in Athens, 3,500 people a day come seeking food and clothing, up from about 100 people a day when it first opened 10 years ago.

The average age of those who show up is now 47, down from 60 two years ago, adding to evidence that those who are suffering now are former professionals. The unemployment rate for men 30 to 60 years old has spiked to 10 percent from 4 percent since the crisis began in 2008.

Aris Violatzis, Anargyros D.’s counselor, says that calls to the Klimaka charity’s suicide help line have risen to 30 a day, twice the number two years ago. "We cannot imagine this," Mr. Violatzis said. "We were once the 29th-richest country in the world. This is a nation in deep emotional shock."

Evidence of the emotional and social shock was abundant in Athens last week. Even as I.M.F. and European banking officials worked with Greek officials to hash out the contours of a second bailout package, a nicely dressed middle-aged woman with silver buckles on her shoes sifted through the garbage cans outside the five-star hotels where many of these officials were staying.

At dusk, riot police fired tear gas at rock-throwing protesters as tourists and workers on their way home took cover. Laid off construction workers have holed up in abandoned villas. A security guard fired by one of the many downsizing Greek companies said he had spent the last year sleeping in the back seat of his battered hatchback. And a chef trained in the premier cooking school in Athens spent 18 months sleeping on park benches after the restaurant where he worked eliminated his job. A homeless charity recently gave him shelter.

While aid workers refer to these people as a new generation of homeless, the Greek government does not officially recognize the homeless as a social category in need of assistance, says Anta Alamanu, who runs a privately financed shelter for Klimaka, the social services group. As a result there are no government-supported homeless shelters as they exist in other parts of Europe or in the United States.

When Kostas DeLazaris, 47, lost his tourism job on the island of Corfu in 2007, he joined a construction firm in Athens, only to lose that job 10 months ago as the once-buoyant building industry ground to a halt. Now he sleeps on the floor in an abandoned house, sharing the space with two Greek women and a family of Bangladeshi immigrants. He was a dedicated union man when he worked in tourism, serving as vice president of his local branch. But on the same day last week that his former peers marched on Parliament in protest, he said he would not be joining them.

"I feel betrayed," he said, his voice rising in anger. "I paid my dues. I was part of the masses, and now I am on the streets." He snorts at the possibility of a new deal with Europe. "That is a dead end," he said. "There will be an earthquake instead and blood will be spilt."

Indeed, there are analysts who argue that a social flare-up is in the making, fueled by the divide between the hard-hit private sector and a public work force of about one million strong that so far has not experienced significant job losses. "This is an explosive situation, and there could well be violence," said Stefanos Manos, a former economy minister who has advocated more aggressive spending cuts. "Especially as those who lost their jobs were earning 50 percent less than those who kept them."

There is mounting criticism that Prime Minister George A. Papandreou, after a burst of changes last year, has lost his nerve. A plan to raise 50 billion euros by 2015 by privatizing the publicly owned power and train companies has been a bitter disappointment. Those companies, home to powerful unions that protect what some view as thousands of excess workers, remain largely untouched by reforms.

Mr. Papandreou has achieved some success in opening up closed professions and reforming the country’s pension and retirement systems. And he still retains the support of many Greeks, who believe that there is no better alternative. But his critics say he may be avoiding the difficult choices in the belief that, as the saying goes here, the god of Greece will save Greece by means of a fresh European bailout.

That is what Richard Parker, a political economist from Harvard who is serving as one of Mr. Papandreou’s top outside advisers, thinks should happen. Germany, he says, has to overcome its Calvinist instincts and write Greece one big check so that it can continue its economic overhaul process. "Greece’s debt is just 3 percent of the euro zone G.D.P.," said Mr. Parker, who has known Mr. Papandreou for more than 40 years. "And the price of tipping over Europe will be much larger. My attitude is, give them the money."

Greece may well get the assistance, with strings attached, of course. But whether that will help lift Anargyros D. out of his despondency remains unclear. At age 41, he lives off his father’s monthly pension of 962 euros, which is down from 1,500 euros a year ago, and he must borrow money for the bus from his home in the Peloponnese region to his counseling sessions in Athens. "Everything was coming up roses," he said, mashing a cigarette into the ashtray before him. "And then the banks took it all away from us."

The European Central Bank asked the European Union’s General Court to dismiss a lawsuit seeking the disclosure of documents showing how Greece used derivatives to hide loans and triggered the region’s sovereign debt crisis.

The ECB has complete discretion to decide what it should publish in the public interest, according to its defense to a lawsuit filed by Bloomberg News. Releasing the papers could damage the commercial interests of the ECB’s counterparties, hurt the region’s banks and markets, and undermine the economic policy of Greece and the EU, the central bank said.

The documents don’t "provide information that would assist in informing the public debate in any meaningful manner," the ECB said in its lawsuit. The files "contain ECB’s staff assumptions and hypotheses which were intended to feed the internal deliberations," the ECB said in papers served today. The notes "were as such made on the basis of partial elements available at the time and not fully accurate information."

ECB President Jean-Claude Trichet is withholding the documents as EU finance chiefs prepare to meet next week to discuss additional support for Greece, which received a 110 billion-euro bailout ($155 billion) last year. More than four in five institutional investors say Greece will probably default on its debt, according to a Bloomberg Global Poll published today.

The documents should also be protected to safeguard the effectiveness of the ECB decision-making process, the central bank said. The ECB also challenged the Bloomberg suit on technical grounds. The suit, which is based on the EU’s freedom of information rules, was filed in Luxembourg in December. It requested access to two internal papers drafted for the central bank’s six-member executive board in Frankfurt last year.

‘More Accountability’"Greater transparency results in more accountability, and the investing public has the right to know more about the roots of Europe’s sovereign debt crisis," said Matthew Winkler, editor-in-chief of Bloomberg News. The company intends to file a response.

Eurostat, the EU’s statistics office, last year provided sufficient information on its doubts about the impact of swaps on Greece’s debt, allowing the public to form their own opinion, the ECB said in its filing. The off-market swaps, which Greece hadn’t previously disclosed as debt, let the country increase borrowings by 5.3 billion euros, Eurostat said in November.

Restructuring Greece's debt would have "massive harmful effects" on the embattled country and would not solve its financial crisis, one of Europe's most senior banking officials has warned.

In comments designed to boost confidence in financial markets, Jurgen Stark, executive board member at the European Central Bank, said speculation that Greece is insolvent was a "false assumption". "I would warn against underestimating the massive harmful effects a debt restructuring would cause for the country involved and for the eurozone as a whole," Mr Stark said, according to Reuters reports.

Global equity markets have been hit this week on fears that Greece could fail to meet debt repayments terms and be forced to call for a second bail-out. Mr Stark said such a restructuring could lead to contagion. "It is very well conceivable that the risks for financial market stability could spread to other European countries," he said. "The idea that one could then solve a fiscal crisis through a simple debt reduction [from a restructuring] is consequently an illusion."

The ECB executive, who heads up the Bank's economics department, said it would take time for Greece's new economic realities to find support, but warned that a second bail-out would put necessary reforms at risk. "In the case of Ireland and Portugal there is broad support and accountability. I expect this will soon be the case in Greece as well," he said.

Worries over Greece's troubles pushed UK and US markets lower. The FTSE closed down 19.09 at 5925.87, while in the US the Dow Jones fell 100.17 to 12595.75.

European finance ministers are due to meet in Brussels on Monday to discuss the possibility of more support for Greece a year on from its first bail-out. The Greek economy grew 0.8pc in the first quarter, according to figures released yesterday, but with more austerity measures likely, few expect the expansion to be sustained.

The dollar, a popular destination for money during moments of uncertainty, gained almost 1pc against a basket of currencies. "You've got these major financial shattering events potentially lurking out there that you don't know how to play," said Paul Mendelsohn at Windham Financial Services. "When in doubt, get out."

Austerity measures "don’t work" and prevent countries from creating jobs needed to generate economic growth, said Nobel Prize winning economist Joseph Stiglitz. "Austerity is an experiment that has been tried before with the same results," Stiglitz said today in a speech in Copenhagen. Cutting budgets in low-growth cycles leads to higher unemployment and hampers recovery, he said.

Greece, Ireland and Portugal are under pressure to push through austerity measures that have sparked anti-government protests and general strikes as the three euro members struggle to comply with the terms of their bailout programs. The budget cuts have failed to persuade most investors the countries will avoid a default, a Bloomberg Global Poll published today showed.

Europe’s leaders are gripped by "deficit fetishism," Stiglitz said. Austerity "doesn’t work, it does not lead to more efficient, faster growing economies," said Stiglitz, a professor at Columbia University in New York who won the Nobel Prize for economics in 2001. The U.S. economic expansion will exceed European growth this year and the next, the European Commission in Brussels said today. U.S. gross domestic product will rise 2.6 percent this year and 2.7 percent in 2012, while the euro area will expand 1.6 percent in 2011 and 1.8 percent next year.

U.S. DeficitThe U.S. federal budget deficit is projected to reach $1.5 trillion, or 9.8 percent of gross domestic product, this year, according to the Congressional Budget Office. The 17- member euro region’s deficit is forecast to be 4.3 percent of GDP this year, the European Commission forecasts. A 2009 U.S. stimulus package increased the number of people employed by between 1.4 million and 3.3 million and cut unemployment by 0.7 percentage point to 1.8 percentage point, according to U.S. CBO.

Eighty-five percent of those surveyed this week said Greece probably will default, with majorities predicting the same fate for Portugal and Ireland, which followed Greece in seeking European Union-led bailouts, the Bloomberg poll showed. The outlook for all three deteriorated since a January poll.

High pay commission forecasts top earners' slice of national income will rise from current 5% to 14% by 2030

Wage disparity between the UK's top earners and the rest of the working population will soon return to the levels of the Victorian era unless action is taken to curb executive pay, a new report by the high pay commission claims. At the same time a new ICM poll shows that 72% of the public think high pay makes Britain a grossly unequal place to live, while 73% say they have no faith in government or business to tackle excessive pay.

The high pay commission was set up last November to scrutinise the rising pay of those at the top of the public and private sectors. Its research suggests that if current trends continue, the top 0.1% of UK earners will see their pay rise from 5% to an estimated 14% of national income by 2030, a level not previously seen in the UK since the start of the 20th century. At present, top earners in this group take as big a slice of national income as they did in the 1940s, the report says.

Deborah Hargreaves, chair of the high pay commission and a former business editor at Guardian News & Media, said that the report provided evidence that the pay gap between the corporate elite and the general public was widening beyond control. "Set against the tough spending measures and mixed company performance, we have to ask ourselves whether we are paying more and getting less," she said.

In 2010, the average annual salary of FTSE 100 chief executives was more than £3,747,000, 145 times greater than the national median full-time wage of £25,800. Executive pay dipped slightly during the recession, but the report predicts that by 2020 the ratio will have spiralled up to 214:1.

Nicola Smith, chief economist with the TUC, said that the report raised concerns about the wider workings of the economy: "Average pay growth was slowing before the recession, wages took a real hit during the recession and we're now seeing very slow wage growth coupled with high consumer inflation. There are real issues of fairness at a point when workers are facing the greatest squeeze in living standards for decades."

Separate figures released by the Institute for Fiscal Studies last week confirmed that income among the top 1-2% of earners grew much faster than for the majority of workers during the Labour government years, a factor the report blames for an increase in social inequality since 1997. The ICM poll shows that, from a range of options, the majority of the public (57%) wants top pay linked clearly to company performance, while half (50%) want shareholders to have a direct say on senior pay and bonus packages.

Robert Talbut, chief investment officer of Royal London Asset Management and a member of the high pay commission, said that the ICM poll showed a clear public interest in tackling excessive pay. "Increasingly there is a clear business interest in doing so too, in part because companies depend on public support but also because the ever more complicated pay packages designed to incentivise performance for top executives – which have contributed to a ballooning in pay at the top – do not appear to have worked," Talbut said. "The clear link between executive pay and company performance appears tenuous at best."

The Institute for Public Policy Research (IPPR), a left-leaning thinktank, said that recent research showed the public was ready for politicians to tackle income inequality. Nick Pearce, director of the IPPR, said a YouGov poll revealed that two-thirds of people believe the pay gap in their workplace is too wide. "It is vital that the government use this public support to act and start to narrow unjustified inequalities in pay and reward," he said.

In an interview with the Guardian last month, John Cridland, the new director-general of the employers' organisation the CBI, admitted it was an issue that needed to be addressed. "Business has to show high levels of remuneration are payment for results," he said. "It's not payment separate from the achievement of senior executives." The high pay commission was formed last year and is due to make its final report in November.

The Government believes the French government is "hardening" its stance in the battle over Ireland’s corporation tax regime, dampening hopes of an early deal to cut the interest rate on Irish bailout loans. As the standoff intensifies with Paris over its demands on Dublin to increase the 12.5 per cent corporate tax rate, the Government is now drawing a clear distinction between the positions adopted by France and Germany.

In Brussels last night, Minister for Enterprise Richard Bruton said that France appeared to be pursuing a "one-item agenda" in relation to the corporate tax rate.

In Berlin, meanwhile, Minister of State for Europe Lucinda Creighton said the tax rate was not a "red line" issue for Germany. With no end in sight to the logjam, Reuters quoted Minister for Public Sector Reform Brendan Howlin saying the Government wanted in due course to reschedule the debt accumulated under the EU-IMF rescue. The Government insists it will not increase the corporate tax rate, but it has signalled its willingness to enter serious discussion on the common consolidated corporate tax base (CCCTB), a policy Taoiseach Enda Kenny recently described as a "back door" route to tax harmonisation.

However, Mr Bruton said this move had received a negative response from Paris. "It is my understanding that the Department of Finance did engage with colleagues in terms of the CCCTB and the French government did not signal an interest in pursuing that at that stage," he told reporters. Mr Bruton said there seemed to be a hardening in relation to the French position. With talks on Monday between euro zone finance ministers set to be dominated by the increasingly precarious financial position of Greece, there is little prospect that the interest rate question will be settled at those talks. "It would appear that there isn’t going to be an agreement next week," Mr Bruton said.

He also made the point that the interest rate on the Portuguese bailout, due to be signed off by the ministers next week, was three-quarters of a percentage point lower than the Irish rate. The ministers’ talks take place against the backdrop of renewed reports that a restructuring of Greek debt may be in prospect. Die Welt reported yesterday that Germany backed "voluntary restructuring" of Greek debt, but Berlin said it had no knowledge of any such plan.

Germany took a hard line this week over its demands for a quid pro quo for a lower interest rate, but Ms Creighton praised Berlin’s "constructive" approach after talks yesterday. "I think the French position [on tax] is much more trenchant, whereas there is much more understanding on the German side," she said. "I had a good opportunity to put forward our case . . . and I don’t think the tax rate is a red line issue for Germany."

As the EU Commission lowered its growth forecast for Ireland, Mr Howlin said the Government would not accept less favourable treatment than any other bailout recipient. "Obviously long-term rescheduling of debt is something that would be desirable and we will deal with it," he said. Asked about such remarks, Mr Bruton acknowledged there were "other options" in the policy mix. "Certainly there’d be no question that if some of those other policy options were to be adopted it would be a better framework from our point of view, but we are continuing to work the agreement that we have and that’s our position."

Pressure to increase the corporate tax rate came from outfield, he said. "It’s not part of a programme that would help Ireland meet its obligations or achieve the recovery that’s necessary."

Cash-rich global pension funds are starting to increase their miniscule emerging market allocations, raising the prospect of a rapid acceleration in flows that could swamp the relatively small asset class.

Retirement funds in the world's 13 biggest pension markets hold assets of around $26 trillion -- almost 10 times the value of MSCI's emerging stock index and three times the entire stock of emerging local currency debt in the world.

So far, little of that huge cash stock has come to emerging markets. Fund managers estimate allocations at 5 percent, making them grossly underweight a sector that comprises almost half of the world economy and 13 percent of global stock indices. "There are very few pension funds worldwide that have more than 5 percent of their assets in emerging markets. If anyone has 20 percent they would be an outlier," said Julian Mayo, portfolio manager at Charlemagne Capital. "But our impression is there is definitely a gradual increase in exposure to the asset class by pension funds."

That is borne out by a recent torrent of new emerging market mandates from pension funds, including $400 million awarded by U.S. giant CalPERS. Similarly, the UK's 31 billion-pound USS pension fund said it would pump 320 million pounds into emerging equities, taking its weighting to 7.5 percent from 5 percent. And CalPERS may have doubled its EM equity investments since 2007. Though that has still only taken its allocation to $5.2 billion or 2 percent of its $238 billion asset base, showing how under-invested pension funds are in emerging markets.

Big Fish, Small Pond?So by all accounts, large institutional flows are poised to join the developing asset class, potentially providing a strong boost to markets. Moreover they are just the kind of sticky, long-term investments emerging governments crave. But it means developing nations must step up stock and bond issuance or risk the destabilising consequences of having too much investor cash chasing too little market cap.

To put that in perspective, a 1 percent allocation swing by the $26 trillion industry would bring in $260 billion or almost 10 percent of the existing market cap of the MSCI emerging index, a disparity in size that Bank of England economist Andrew Haldane likens to a "BFSP problem," or big fish in a small pond. "The BFSP problem is real. It may be rising. The result would be growing waves of global financial exuberance punctuated by crashing capital busts," Haldane said in a presentation to the Bretton Woods conference last month.

What pension funds have is a home bias, focusing investments at domestic or developed markets. But this bias is eroding. Haldane calculates that a 0.1 fall in a weighted home bias index for developed countries would equate to a $4.5 trillion portfolio swing, with bias measured on a zero to one index. Bursting financial asset bubbles would have big economic repercussions. They also risk a return to the old boom-bust cycles that made emerging markets a byword for high-risk investment through most of the 20th century -- the very factors that have kept pension funds wary of them until now.

FootraceDeveloping countries, aware of these risks, are engaged in what Haldane calls a "footrace" as they try to expand supply of investable securities to keep up with surging investor flows. Total EM equity capitalisation will rise to $37 trillion by 2020 from $14 trillion now, while the emerging market share of world indices will rise to 19 percent from 13 percent, Goldman Sachs has predicted.= But western investors will also up EM equities to 18 percent of total investments by 2030 from under 6 percent now, GS added.

The main factor forcing Western pension money into EM is the worsening asset-liability mismatch as poor investment returns in recent years fail to meet the needs of ageing populations.Pension strategies tend to be liability-driven, meaning they must match asset allocation with current and future liabilities. In the United States for instance, the Pew Centre, a Washington-based think tank, estimated the states' pension system is over $600 billion short for future benefit payments. The U.S. states had assumed 8 percent annual investment returns, twice what was achieved from 2000 to 2009, it added.

Emerging investments have the potential to fill these gaps -- MSCI emerging equities have returned 30 percent in dollar terms since 2006 while developed equities have lost 7 percent. "In order to have sufficient returns one has to have assets that bear a risk premium," said Timo Loyttyniemi, managing director of Finnish state pension fund VER, who has upped emerging stock weighting by a third to 15 percent.

Asset managers say even such moves are too slow. Claire Peck, client portfolio manager at JP Morgan Asset Management says pension funds should ideally get a core EM allocation of 10 percent and then tactically raise it to 20 percent over time. Some like Jerome Booth, head of research at the $50 billion Ashmore fund, dismiss the BFSP fears. Booth reckons investors should move to GDP-weighted allocations to max out returns.

That implies a 50 percent weighting, he says. "This is a very demand-elastic asset class. If there is a trillion dollars of demand, we'll see a trillion dollars worth of supply.

Fitch raised its outlook on Iceland to "stable" from "negative" on Monday, saying the rumbling Icesave dispute over debts from the 2008 collapse of Iceland's banks was unlikely to delay an economic recovery.

The collapse of Iceland's financial system sent the economy into a tailspin and forced the government to go to the International Monetary Fund and Nordic neighbours for cash. However, an ongoing dispute with Britain and the Netherlands over more than $5bn (£3.1bn) lost by savers has clouded Iceland's attempt to get its economy back on its feet.

Fitch's Paul Rawkins, senior director in the Sovereign Rating Group, said that solving the Icesave issue was an important step towards the normalisation of relations with international creditors. "However, the capacity of this dispute to close off access to multilateral and bilateral funding for Iceland's IMF financial rescue programme and put Iceland's economic recovery at risk has clearly diminished," Rawkins said.

Fitch affirmed its foreign and domestic issuer ratings at BB+ and BBB+ respectively. Rating agencies had threatened to downgrade Iceland after April's referendum – the second time voters rejected plans over how to repay money Britain and the Netherlands gave to domestic savers who lost deposits when Iceland's Landsbanki collapsed. Downgrades would have made it more difficult for the country to return to international markets for funding. Iceland's government has said Britain and the Netherlands will get their money back from the estate of the failed bank.

The housing market remains soft, so we’re told, and the best minds of central economic planning are struggling to understand why and what new government gimmicks can be applied. I’m wondering if former homeowner sentiment has been factored in. This article from Zillow says that approximately 37 percent of home sellers are selling at a loss. Whatever the loss figured by Zillow you also have to add another 5-6 percent in real estate commission, equivalent to more than a year of rent in many markets. Psychologically, a person who just lost enough money to have paid for 5-10 years of rent is not a very likely candidate to go back into the market where he was just burned.

Thus the more houses are sold, the worse the buyer-seller ratio will get. Every sale has a roughly 37% chance of removing a person from the real estate ownership market. More and more Americans will be conditioned to the idea that home ownership is a waste of time and money, not to mention the inflexibility that it imposes on a person who might otherwise have been able to get a better job by moving.

David Leonhardt in the New York Times has some data on the price-to-rent ratio in various markets. In Manhattan it is 30:1. San Francisco and Seattle aren’t far behind. Thus for about 3.3 percent of the cost of buying, a person could rent. A buyer, by contrast, would pay at least 6% in real estate commissions and other transaction costs (the commission might be deferred until the property must be sold, but it will have to be paid eventually; or you could view at least half of the commission as built into the sale price). The buyer will have to pay perhaps 2% every year in property tax and maintenance, plus an additional 5% for mortgage.

In our wealthy suburb of Boston, rents are 3-4% of house prices. That would barely pay for property tax, maintenance (winters are harsh), and landscaping (weeds are aggressive). So the landlord who rents, and there are plenty, is basically giving the house for free to the renter. When it is time to sell, it takes 9-12 months of leaving the house empty, so the cost to sell is 8-10%, even if the market remains flat.

Another advantage for renters is that they can free their minds from the clutter that prevents homeowners from doing or thinking anything interesting. People in Manhattan, even when they own, never do any maintenance or yard work. So they can write novels and build empires. The rest of us go to Home Depot every few days and pull weeds.

Summary: Why would house prices continue to fall then? The longer that house prices fall, the more people will critically assess whether it makes any financial sense to own and conclude “it does not”. They withdraw themselves from the market of potential buyers, at least for 10 years or so until they forget what wounds they suffered and how boring they were when they owned.

It is nearly five years since the peak of the housing bubble, and that highly leveraged sector, with its $11 trillion in residential mortgage debt, continues to struggle. Home values just posted their biggest quarterly decline since late 2008, largely due to a steady stream of foreclosures.

But if we consider that the housing bubble inflated from roughly 1999 to 2006, that made seven fat years. An ancient authority would suggest that seven lean years should follow. That would mean two more lean years to go—not a bad prediction.

Actually, what we experienced was a double bubble: one in housing and a parallel one in commercial real estate, which has mortgage debt of $2.4 trillion. Both of these sectors used the opening years of the new century to run up leverage and asset prices to an unsustainable 90% increase, with housing peaking in the second quarter of 2006, and commercial real estate in the fourth quarter of 2007.

The causes of the housing bubble—subprime mortgages, adjustable-rate mortgages, government-mandated loans, etc.—are well known. The role of traditional lending by the heavily regulated banking system in the commercial real-estate bubble has received less attention, yet its toll in subsequent bank failures is apparent.

The inevitable bust brought a national price drop of 32% from the peak for housing, and an even steeper 42% drop from the peak for commercial real estate. These erased trillions of dollars of illusory bubble "wealth." The combined drop in market values was greater than $8 trillion—that's more than the GDP of China last year.

Why did house prices fall proportionally less than commercial real-estate prices after they both inflated to the same extent? In part, at least, this reflects large government programs and subsidies to support house prices. But even with this support, the asset prices on which huge amounts of debt had been built shriveled, leaving the debt under water. As an old banker told me long ago, "Just remember this, young man: Assets shrink—liabilities never shrink!" The credit markets for housing and commercial real estate obviously did not remember this classic principle.

We all know too well the result: huge defaults, losses, TARP and more than 350 bank failures—not to mention the failures of government-sponsored enterprises Fannie Mae and Freddie Mac. Even this long after the peaks of the double bubble, much of the debt overhang—or better, hangover—remains to be worked through. The industrial sector has recovered and is growing, with strong profits, cash build-ups, and a bull market in stocks. But the huge real-estate debt hangover continues to weigh down overall economic performance.

Perhaps with some poetic justice, this is the inverse of the situation in the early 2000s, after the collapse of the tech-stock bubble. Then we had an industrial recession and the deflationary pressure from past euphoric overinvestment. Japanese-style deflation was feared and widely discussed. And an answer was found by the Federal Reserve: A housing boom could balance the effects of the industrial recession.

This was the Greenspan Gamble, which intentionally fostered a boom in housing in the 2000s to counter the drag in the aftermath of the 1990s equity bubble. Then-Fed Chairman Alan Greenspan explained to Congress in 2002 that the negative wealth effect from the losses in the stock market was being offset by the positive wealth effect of the rise in housing prices. So it was, at that point. But the desired housing boom grew into another massive bubble.

We now have the Bernanke Gamble to foster high prices for debt and equity securities, thus a positive wealth effect to offset the negative wealth effect of the huge losses in real estate and real-estate debt. Fed Chairman Ben Bernanke's gamble is being wagered on a long period of zero short-term interest rates and by the remarkable expansion of the Fed's own balance sheet, including the purchase of about $1 trillion in mortgage debt—making the Fed, in a sense, the largest savings and loan in the world.

Will it work? Perhaps. But large unrealized losses still need to be realized and swallowed. We will continue to move sluggishly through an extended period of negotiating how these losses will be distributed. Who will take the hit? Delinquent borrowers, banks, investors (domestic and foreign), the government and government-sponsored entities, and the strapped deposit insurance fund are all involved in these contentious negotiations.

The negotiations also involve the role of Fannie Mae and Freddie Mac, which although hopelessly insolvent and having their losses paid for by taxpayers, are nonetheless funding the majority of new mortgage loans with government-backed debt. Their supporters want to continue having them fund mortgages as big as $729,750 to help prop up high-end housing prices. Opponents like me point out that this prevents the necessary return of private capital to mortgage finance.

As the debt hangover works its way through the system, the outlook is for housing to continue along an extended rocky and bumpy bottom, generally moving sideways in nominal terms. Since we will have an overall inflationary regime, real house prices will be falling. After working through the concluding lean years, housing prices can reasonably be expected to regain their long-term trend of increasing a little over 3% per year in nominal terms.

This would take them back to their highs in 10 years or so. If this happens, it will be far better than the performance of Nasdaq stocks, which a decade later have never even remotely approached their bubble high.

Mr. Pollock is a resident fellow at the American Enterprise Institute. He was president and CEO of the Federal Home Loan Bank of Chicago, 1991-2004.

The outlook for Medicare’s finances has worsened on a slow economic recovery and higher costs, while the outlook for Social Security has also declined, trustees for the programs said Friday. Medicare’s Hospital Insurance Trust Fund is now expected to be exhausted in 2024 — five years sooner than projected last year. Upon exhaustion, dedicated revenue will be able to pay 90% of costs for the hospital-insurance program.

Meanwhile, government officials said trust fund reserves for Social Security will be exhausted in 2036, one year sooner than expected last year. Afterwards, tax income will only be able to pay for three-quarters of scheduled benefits though 2085. For the first time since 1983, Social Security spending was greater than non-interest income in 2010. A $46 billion deficit is projected for 2011, compared with $49 billion in the prior year.

Also, trust fund exhaustion for disability insurance is expected in 2018. Costs for disability insurance have been greater than non-interest income since 2005. "Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided," according to a summary of the reports for the programs.

The reports about Social Security and Medicare come as U.S. lawmakers remain embroiled in arguments about how to tame the deficit. While House Republicans have presented a plan to cut Medicare, neither side has offered a formal proposal to curb Social Security’s rising costs.

On Friday the trustees urged prompt action from U.S. lawmakers, and noted that an aging population and spending growth in coming decades will ramp up costs for Social Security and Medicare, the two largest federal programs,

"If action is taken sooner rather than later, more options and more time will be available to phase in changes so that those affected have adequate time to prepare," according to the trustees’ summary. "Earlier action will also afford elected officials with a greater opportunity to minimize adverse impacts on vulnerable populations, including lower-income workers and those who are already substantially dependent on program benefits."

Beneficiaries of Medicare and Social Security are worried that lawmakers’ proposals could result in harmful cuts. "As leaders begin to hammer out solutions, we urge them not to subject Medicare and Social Security to arbitrary spending limits that could jeopardize the benefits that millions of older Americans have earned through a lifetime of hard work," said A. Barry Rand, AARP’s chief executive, in a recent statement.

"Rather than singling out Medicare, we believe the focus of any reforms should be on making the delivery of health care more efficient and cost effective to all Americans. And we believe we should tackle our budgetary challenges and devise common-sense solutions without making damaging cuts to Social Security — which, as a self-financed program, should be addressed in a separate debate focused on the need for retirement security."

Treasury Secretary Timothy Geithner called for reforms to protect current and future retirees, saying "larger, more difficult adjustments" will be needed if reform is delayed. He added the debt limit is due to be reached by Monday.

"Because Congress has not yet acted, we have now set in motion a series of extraordinary measures that will give Congress some additional time to raise the debt limit. I want to again encourage Congress to move as quickly as possible, so that all Americans will remain confident that the United States will meet all of its obligations – not just our interest payments but also our commitments to our seniors," Geithner said in a statement.

HM Revenue & Customs has failed to provide details of a deal that allowed Goldman Sachs to avoid millions in unpaid tax after other firms settled similar disputes, according to a prominent member of a powerful parliamentary committee. The lack of disclosure in the long-running dispute with the US investment bank meant there was a danger the public would think there was "one rule for some companies and another for individual taxpayers", said Labour MP Chuka Umunna.

Without directly attacking the appearance of preferential treatment for the US investment bank, Umunna said he was concerned that the case echoed the tax deal with Vodafone that led to demonstrations and protests by the campaigners UK Uncut. Vodafone was accused of saving £6bn in tax after it agreed a deal with HMRC.

The Goldman case has come under the spotlight following an investigation by the Treasury select committee, which is concerned about the tax authority's effectiveness in dealing with large corporations. Umunna said at a hearing this week that HMRC should disclose details of the deal to reassure MPs that Goldman was subject to the same rules as other taxpayers.

He called on Treasury minister David Gauke and Stephen Banyard, one of HMRC's senior directors, to come clean over the deal, which followed an eight-year dispute and the threat of court action against Goldman. Gauke admitted during the hearing that he was aware of the Goldman case but had not looked at the details of the settlement. He said: "I am aware of the issues with regards to Goldmans along these lines but this is not a subject matter I have discussed with HMRC's senior management."

Umunna said Goldman avoided £10.8m in unpaid tax when the case was dropped last year. The satirical magazine Private Eye, which has written extensively about the case, claims to have seen documents that show HMRC boss Dave Hartnett failed to follow standard guidelines applied to other tax disputes when he settled the dispute with Goldman.

Umunna said: "It is clearly in the public interest for HMRC to put more information into the public domain in relation to the Goldman Sachs case and settlement. "With Vodafone, following public and media scrutiny, HMRC decided to give further information to our committee to reassure the public that the proper procedures were followed – it should do the same with the Goldman case for precisely the same reasons.

"It is incredibly important that the public can have confidence that there is not one rule for ordinary taxpayers and another for global investment banks and major corporations when it comes to people meeting their obligations to pay tax and national insurance."

Goldman came under scrutiny in the late 1990s, like many companies, for avoiding national insurance contributions by using staff at its London HQ that were employed by wholly owned offshore subsidiaries. HMRC launched legal proceedings in 2002. It won the dispute and settled with several companies in 2005, which meant they paid the full NI contributions without an extra bill for interest payments. Goldman continued to deny it breached tax rules, but eventually settled in 2010. Under standard procedures, it would have been forced to pay interest covering the 10 or more years the tax went unpaid, but this penalty was waived.

An HMRC spokesman said: "Taxpayer confidentiality is a statutory legal duty on HMRC. We have said all that we can concerning Goldman Sachs and Vodafone."

Ernst & Young Item Club predicts retailers will have to fight for shoppers' disposable cash for 10 years as household incomes feel the squeeze

Tough conditions for high street retailers will last for a decade, as household budgets are squeezed and people focus on paying down debt, according to economics thinktank the Ernst & Young Item Club. With disposable incomes now falling, the thinktank predicts it will be 2013 before consumers themselves can start enjoying any economic recovery.

Data to be released this week is expected to show the economy reversing the gains of last year with higher inflation, rising unemployment and falling average incomes. City analysts said inflation figures on Tuesday would show a return to the upward trend of the last year, with many fearing it will hit 5% in coming months.

The April figure for unemployment, also to be released this week, is due to show only a small rise on the month but will indicate the underlying trend is upward following deep cuts in local government jobs and other areas of the public sector. Meanwhile a survey of industrial production will point to a weakening of the manufacturing export boom, while average incomes continue to flatline.

The slowing economy has put the chancellor of the exchequer, George Osborne, on a collision course with MPs on the Tory right wing who want him to spur the economy with tax cuts for business and wealthy entrepreneurs. Fraser Nelson, editor of the Spectator and chief political commentator in the News of the World, accused the chancellor this weekend of failing to stimulate growth with deeper spending cuts to finance bigger tax breaks.

However, he faces an equally strong challenge from the majority of mainstream economists who believe it will take time for the economy to recover while the government cuts debt. The Item club said efforts by consumers to reduce debt levels would also play a big part in slowing the economy. Retailers will have to fight harder than ever for a share of shoppers' cash, it said.

Despite the belt-tightening, analysis of spending habits shows people still willing to splash out on mobile phones, flat-screen TVs, blu-ray players and gaming consoles, even during the recession. The thinktank expects shops selling audiovisual goods to enjoy sales growth of up to 5% this year. Spending on clothes and shoes is expected to recover in 2012.

Consumers will still be more likely to take advantage of supermarket meal deals than eat out, and to take sandwiches to work rather than getting a take-away from the local cafe. Hotels and restaurants will see spending fall by 0.7% this year before a 0.2% rise in 2012.

The Item Club said consumer spending was set to remain below pre-recession peaks until at least 2013 but would then remain subdued for a further seven years. Andrew Goodwin, senior economic advisor to the thinktank, said: "The squeeze on household budgets is only going to intensify this year, as the gap between high inflation and subdued wage growth continues to widen and we experience a second consecutive year of declining disposable incomes.

"Even [after 2013] consumers are going to be much more cautious in their spending habits, particularly once interest rates have started to rise and mortgage and debt payments spiral." A separate report from Rightmove showed property asking prices had hit their highest level in almost three years and were now only 1.5% below their all-time high. The average price of a home rose by 1.3% to £238,874 in May from April. The property website cited low interest rates and a dip in seller numbers, with new listings falling from 29,000 a week to 20,000 a week over the extended bank holiday period. In London, the average price was virtually unchanged at £430,936 this month, just £77 off the all-time high set in April.

According to the Construction Products Association, construction grew in the first three months of the year compared to the weather-hit fourth quarter of 2010, in sharp contrast with official figures that show output in the sector fell by 4%. However, construction firms are gloomy about prospects as public sector work dries up.

Stephen Ratcliffe, director of UKCG (UK Contractors Group), said: "There remains a great deal of concern regarding the year ahead given that we have not yet seen the full impact of the public sector cuts. The government has stated that construction is at the heart of its growth strategy for the UK economy and as it accounts for around 10% of the UK's economy, it is vital that investment in essential schools, hospitals and housing is maintained at levels that will provide the basis for economic recovery."

I am asked all the time what my biggest worry is, and I quickly answer, the European Sovereign Debt Crisis. Of course, then we have to think about the Japanese Sovereign Debt Crisis, followed by the one in the US; but today we will focus on Europe. The biggest bubble in history is the bubble of government debt. It is a bubble in a world full of pins. It will take a great deal of luck and crisis management to keep it afloat, without wreaking havoc on the financial system and markets of the world.

The rumors have been flying all this week. Greek is going to leave the euro. No, it won’t. Germans are demanding debt restructuring, and then they say no. A German newspaper is reporting that the EU, IMF, and Germany want a Greek debt extension, while the ECB (holders of Greek debt) and France oppose it. Greek two-year bonds are now paying 25% if you care to buy them in the open market, which is effectively the market voting for some type of debt restructuring or outright default.

I sat down this week and read two lengthy reports on how Greek debt could be restructured in an orderly manner. One was from HSBC and the other from Roubini Global Economics. There are ways it can be done. But the costs of the various options may be more than the affected parties want to bear. It is not a matter of pain or no pain; it is a decision as to who will bear the pain.

The fundamental problem for Greece is that there is no sign of economic recovery, with GDP at -4.5% in 2010 and still likely to be -3.0% in 2011 (IMF). If your economy slows down by 10%, then your debt-to-GDP ratio rises by 11% without any new debt. And Greece is being asked to further reduce its deficit by what is in effect 15% of GDP, while taking on no more debt. Within two years Greece will have a debt-to-GDP ratio of 160% that can only come down under very optimistic growth scenarios. And that assumes that Greece can right its own house. I have mentioned the wonderful article by Michael Lewis in Vanity Fair last October. He refers to the massive corruption in Greece:

"The scale of Greek tax cheating was at least as incredible as its scope: an estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year—which meant, because incomes below that amount weren’t taxable, that even plastic surgeons making millions a year paid no tax at all. The problem wasn’t the law—there was a law on the books that made it a jailable offense to cheat the government out of more than 150,000 euros—but its enforcement. ‘

If the law was enforced,’ the tax collector said, ‘every doctor in Greece would be in jail.’ I laughed, and he gave me a stare. ‘I am completely serious.’ One reason no one is ever prosecuted—apart from the fact that prosecution would seem arbitrary, as everyone is doing it—is that the Greek courts take up to 15 years to resolve tax cases. ‘The one who does not want to pay, and who gets caught, just goes to court,’ he says. Somewhere between 30 and 40 percent of the activity in the Greek economy that might be subject to the income tax goes officially unrecorded, he says, compared with an average of about 18 percent in the rest of Europe.

"… The Greek state was not just corrupt but also corrupting. Once you saw how it worked you could understand a phenomenon which otherwise made no sense at all: the difficulty Greek people have saying a kind word about one another. Individual Greeks are delightful: funny, warm, smart, and good company. I left two dozen interviews saying to myself, ‘What great people!’ They do not share the sentiment about one another: the hardest thing to do in Greece is to get one Greek to compliment another behind his back. No success of any kind is regarded without suspicion.

Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his real estate. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes any sort of civic life impossible; the collapse of civic life only encourages more lying, cheating, and stealing. Lacking faith in one another, they fall back on themselves and their families.

"The structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective. Its real structure is every man for himself. Into this system investors had poured hundreds of billions of dollars. And the credit boom had pushed the country over the edge, into total moral collapse."

It is a seven-page article and worth reading, as it gives you the scale of the problem that is Greece.

This week has seen yet more rioting by Greek unions. In effect they are protesting the latest debt negotiations, because they mean even more austerity. The French and Finns are demanding about $50 billion in privatization of government-owned enterprises, which means the loss of public jobs. The Germans have their own demands.

Both HSBC and Roubini assume there are options that can work to extend the debt maturities, lower the interest rates, and give Greece some room to work out its problems. But the solution to too much debt is not to increase the debt. No country save Britain at the height of its empire has ever recovered from a debt-to-GDP ratio of over 150% without a default. None.

And the reason is simple arithmetic. Even a nominal interest rate of 6% means that it takes 10% of your national income just to pay the interest. Not 10% of tax revenues, mind you; 10% of your total domestic production. That is a huge burden on any country. It sucks up half your tax revenues (or more), leaving not enough to pay for ordinary government services like police, defense, education, pensions, health care, etc.

Greece runs a massive trade deficit with the rest of Europe, which just makes the problems worse. Unemployment in Greece is now 15% and rising. And everyone can clearly see that the current loan facility will run out at the beginning of 2010, yet Greece will need at least another 30 billion euros right after that. They clearly are not going to be able to access the private markets, so they are negotiating now to get more money to carry them into 2013, when the new European Stability Mechanism will in theory be in place (more below).

But an interesting thing is happening. Greece consumer and business debt is rising in the midst of what can rightfully be called a depression. How can that be? Don’t consumers and businesses retrench in a recession? Look at this chart from Stratfor:

As they write:

"Despite further expected unemployment, the Greek household sector remains considerably indebted, with only marginal deleveraging occurring. This is a worrying sign because it shows that Greek consumers have not been able to cut down their debts and have not reduced their standards of living in light of severe economic crisis.

They may be unable to reduce their debts precisely because many have lost jobs or had their public sector salaries significantly reduced and are therefore depending on consumer credit to maintain their levels of expenditure and to service their debts (paying credit card bills with more credit card debt, as an example).

Meanwhile, the overall banking sector has actually increased the amount of credit it has extended to consumers, corporations and the government. The total amount of credit outstanding was more than 333 billion euros in February — more than the 325 billion euros-worth of credit outstanding in May 2010, with the most significant increase in lending from banks going to the government itself.

"The problem, however, is that the government cannot decrease lending to consumers or force its banks to do so. That would not only throw Greece into an even deeper recession, it would also cause considerable pain to Greek citizens already frustrated to the point of protest."

I am not persuaded that it is all an inability of Greek consumers and businesses to pay down debt. The rumors that Greece will go back to the drachma are not without reason, as I will detail shortly. If they did, it makes real sense for someone who wants to buy a car to do so today, as the drachma will quickly fall 50%, which doubles the price of that German, French, or Italian car. If you are a business, you might be thinking it makes sense to move forward your capital investment, as any non-Greek equipment will become decidedly more expensive post leaving the euro.

Note: I am not saying that Greece will behave this way, just that it makes sense for those who want to make capital investments to hedge their bets, just in case.

Roubini writes:

"A haircut of 20-50% is required to achieve debt sustainability. To put things into perspective, it is worth considering the magnitude of haircut required to make debt clearly sustainable. For simplicity at this stage, we consider face-value haircuts in our debt sustainability analysis toolkit and find that a haircut of around 20% on the total stock of debt would allow Greece to achieve a debt-to-GDP ratio of 60% by 2030. This assessment is based on the macroeconomic projections in the IMF’s April 2011 WEO; however, more conservative macroeconomic projections suggest a haircut of around 50% could be necessary."

But such a haircut would also mean that the Eurozone member countries would have to fund Greek debt for a long time, as the private markets would simply shut them out until real credibility was established. And that might take some time. The Greeks have long made a practice of defaulting on debt. The first recorded sovereign debt defaults were the Greek city-states, over 2,000 years ago. Greece has been in default 150 of the last 200 years.

Such perpetual funding will not be popular, and already one can see the rise of euro-skeptic parties all over Europe. Nothing can be done without Germany, and Angela Merkel is in danger of losing her coalition. One of her junior members, the right-of-center and very pro-euro Free Democratic Party, which is very necessary to Merkel, might not even get enough votes to qualify for representation in parliament if a new election were held today.

And the ESM mentioned above has to be voted on and approved by all 27 countries that are treaty members, as it requires a change to the treaty that created the EU. I think getting unanimous approval might be difficult if it means countries have to be responsible for Greek debt. One of the reasons normally given for extending the debt to Greece is that it would avert a crisis of the euro. I am not so sure. If Greece were allowed to leave I think the euro would get stronger.

I think both Greece and the EU would be better off if Greece did default, but it’s not my decision. Just saying.

Ireland is a Different Story Morgan Kelly is professor of economics at University College Dublin. He is not popular at times with the establishment, as he points out their foibles, but he has a very good track record of being right. He recently wrote a devastating piece for the Irish Times, which has gone viral in Ireland. He basically points out that the Irish cannot afford to pay the debts of their banks. He suggests they simply walk away. His conclusion:

"The original bailout plan was that the loan portfolios of Irish banks would be sold off to repay these borrowings. However, foreign banks know that many of these loans, mortgages especially, will eventually default, and were not interested. As a result, the ECB finds itself with the Irish banks wedged uncomfortably far up its fundament, and no way of dislodging them.

"This allows Ireland to walk away from the banking system by returning the Nama assets to the banks, and withdrawing its promissory notes in the banks. The ECB can then learn the basic economic truth that if you lend €160 billion to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner. At some stage the ECB can take out an eraser and, where "Emergency Loan" is written in the accounts of Irish banks, write "Capital" instead. When it chooses to do so is its problem, not ours.

"At a stroke, the Irish Government can halve its debt to a survivable €110 billion. The ECB can do nothing to the Irish banks in retaliation without triggering a catastrophic panic in Spain and across the rest of Europe. The only way Europe can respond is by cutting off funding to the Irish Government.

"So the second strand of national survival is to bring the Government budget immediately into balance. The reason for governments to run deficits in recessions is to smooth out temporary dips in economic activity. However, our current slump is not temporary: Ireland bet everything that house prices would rise forever, and lost. To borrow so that senior civil servants like me can continue to enjoy salaries twice as much as our European counterparts makes no sense, macroeconomic or otherwise.

"Cutting Government borrowing to zero immediately is not painless but it is the only way of disentangling ourselves from the loan sharks who are intent on making an example of us. In contrast, the new Government’s current policy of lying on the ground with a begging bowl and hoping that someone takes pity on us does not make for a particularly strong negotiating position.

By bringing our budget immediately into balance, we focus attention on the fact that Ireland’s problems stem almost entirely from the activities of six privately owned banks, while freeing ourselves to walk away from these poisonous institutions. Just as importantly, it sends a signal to the rest of the world that Ireland – which 20 years ago showed how a small country could drag itself out of poverty through the energy and hard work of its inhabitants, but has since fallen among thieves and their political fixers – is back and means business.

"Of course, we all know that this will never happen. Irish politicians are too used to being rewarded by Brussels to start fighting against it, even if it is a matter of national survival. It is easier to be led along blindfolded until the noose is slipped around our necks and we are kicked through the trapdoor into bankruptcy.

"The destruction wrought by the bankruptcy will not just be economic but political. Just as the Lenihan bailout destroyed Fianna Fáil, so the Noonan bankruptcy will destroy Fine Gael and Labour, leaving them as reviled and mistrusted as their predecessors. And that will leave Ireland in the interesting situation where the economic crisis has chewed up and spat out all of the State’s constitutional parties. The last election was reassuringly dull and predictable but the next, after the trauma and chaos of the bankruptcy, will be anything but."

I totally agree. I have been writing for a long time that Ireland should not bail out their banks. They simply cannot afford to. Tell the EU and British banks to go pound sand. Kelly is right, it will mean serious budget cuts; but like Iceland when it rejected baking its banks, it will mean a quick recession and then growth can start again.

The Irish have a very different national character than Greece; and once things get righted, the markets would soon be willing to take Irish debt. Russia and Argentina other countries have defaulted and within a few years were back in the capital markets. Ireland could be too. I am very seriously thinking of going to Ireland this summer to just talk to local people and see for myself what is going on. Ireland sounds a lot better than the Texas heat in August.

Kicking the Can to the End of the RoadEuropean leaders will continue to try to kick the can down the road. I would not be surprised to see no real "crisis" this year. But there is an Endgame. And I think it involves voters and not just leaders. The guy in the street can see that bailing out countries is really just a back-door way to bail out banks on the backs of taxpayers and the currency. If it were just Greece, maybe. But it is Portugal and Spain. Especially Spain. Spain is too big to save. I love Spain; it is one of the most beautiful and gracious of countries. But there are real problems.

The banks have maybe – maybe – written down their housing-related losses 10%. It should be more like 40%, which would make most Spanish banks insolvent, so they won’t write them down. Unemployment is over 20% and rising. Like Ireland, they allowed their housing market to get away from them. They believed that someone was going to buy all those homes they were building. And now they are teetering on recession and likely to fall back soon, which makes collecting taxes and cutting spending more difficult. With each new data point this year, Spanish debt costs will rise.

Each new version of the crisis will spook the bond markets yet again. When you look at the economies of the euro-peripheral countries, it is hard to see how they can dig themselves out without a great deal of pain and serious spending cuts, which of course means slower economies and even more pain. But that is the only way through, short of the Eurozone basically guaranteeing all debt for a long time, which means you are asking Finnish and German and Dutch and French voters to agree to take on more taxes to pay that debt. Or it means a real loss of sovereignty and control for debtor nations. (Maybe I should take in a trip to Portugal as well. Another country I have yet to visit, and another crisis to take note of firsthand.) I cannot see European countries giving up their national sovereignty willingly.

In the end, this comes down to elections. It becomes not a matter of high finance and political will on the part of European leaders, but of how you convince the burghers in Germany and the practical Dutch (et al.) of the need to share some Greek pain. It requires convincing the Irish people to assume that bank debt, when they have already told their leaders no. I am glad that is not my job. In short, we are watching the biggest bubble of all time, the bubble of government debt, try to keep from popping. My bet is that it can’t. And while the ride will be bumpy, the world our kids get will be better off at the end of the process.

More than 60 per cent of Britons over the age of 50 say the quality of their lifestyle has ‘crashed’ over the past year, an alarming report reveals today. It warns that millions of older people are being crippled by the combination of high cost of living, record petrol prices, tax increases and poor pay rises. The report, from old-age specialists Saga, paints a bleak picture of ever-increasing financial burdens forcing over-50s to make drastic cutbacks in their personal spending.

Saga surveyed about 12,000 adults in this age group, asking about their lifestyle and how it has changed over the past 12 months. Dr Ros Altmann, director general of Saga, said their quality of life had ‘crashed again’. ‘Financial burdens for the over-50s have worsened with living costs soaring,’ she added. ‘We are witnessing a significant decline in discretionary spending. This has worrying implications for the whole economy.’

Over the past year, 61 per cent of older people said they had ‘cut back on non-essential spending’. This does not mean they are living on the breadline, but instead they have a lifestyle which is far less comfortable than it used to be a year ago.

Those polled said their cutbacks range from being forced to use their car less and buying fewer clothes, to cancelling holidays and never eating out. Other cutbacks include occasional treats such as a trip to the cinema or a haircut. But among the worst-hit, the survey found 15 per cent are having to reduce ‘essential’ spending, such as heating their home.

Saga said one of the biggest nightmares for the over-50s is that the value of their hard-earned savings has collapsed as the Bank of England has kept the base rate at the historic low of 0.5 per cent, for more than two years. This has been a saving grace for the millions of homeowners who have a variable-rate mortgage, but a disaster for savers who are earning rates as low as 0.01 per cent. The reports also warns that this age group’s disposable incomes are ‘falling significantly’ amid tax rises such as the VAT hike and National Insurance.

The Office for National Statistics will today publish the latest inflation figures. Last month, inflation hit 4 per cent, which is double the Government’s target. The Bank of England has warned that it expects inflation to keep on rising, and could hit 5 per cent this year. It comes as a separate report, from the insurance giant Prudential, today reveals how women are far more likely to face poverty in old age. Nearly 30 per cent of women do not have a penny invested in a company or private pension scheme, according to the report.

By comparison, just 10 per cent of men are pension paupers with no money put aside for the future. Of those who expect to retire this year, men typically expect to get £19,400 a year, compared with only £12,900 a year for women.

Vince Smith-Hughes, head of business development at Prudential, urged young people to start saving, or risk a penny-pinching retirement. He said: ‘It is imperative for anyone looking to secure sufficient retirement income to start saving as much as they can, as early as they can. He added: ‘There are a number of actions that women can take to help to boost their retirement income. For example, it is a good idea to maintain pension contributions during any career breaks and to explore making voluntary National Insurance contributions after returning to work.’

The retirement income gender gap is at its widest in the South West of England where retired women expect to receive £11,700 a year less than men. Meanwhile in the South East of England the expected retirement incomes for men and women are essentially equal.

The US has suspended payments into a civil service pension fund to free up almost $150bn (£92bn) as the major debtor nation approaches its legal borrowing limit.

Timothy Geithner, the US Treasury Secretary, announced the move in a letter on Monday to Congressional leaders as he explained that the move extends the government's breathing space to August 2 to avoid an unprecedented default on its borrowings.

The US Treasury expected to reach the $14.3 trillion limit on on Monday. Congress needs to raise the legal debt ceiling beyond its current limit, which will require Republicans and Democrats reaching agreement over an issue that bitterly divides them. President Barack Obama warned over the weekend that failure to raise the ceiling risks unravelling the world's financial system.

Given US government debt, or Treasuries as they are known, are considered the safest asset in financial markets and held by investors and central banks around the world, few want to imagine the consequences of a default. "No one in the Treasury market really expects a default," said Bill O'Donnell, a strategist at UBS. "But people are doing up their seatbelts as the rhetoric will only increase over the summer and it could go right to the wire."

America's debt has become a sharp dividing line between the two parties and will be in next year's presidential election. John Boehner, the Republican leader of the House of Representatives, wants The White House and Democrats in Congress to agree to trillions of dollars in spending cuts before Republicans give the nod to any increase. Joe Biden, the vice-president, has been tasked with leading negotiations between the administration and leaders on both sides of the aisle in Congress.

"If investors around the world thought that the full faith and credit of the United States was not being backed up, if they thought that we might renege on our IOUs, it could unravel the entire financial system," President Obama said late on Sunday.

The debt limit dates back to the Second Liberty Act of 1917, which while giving the US government extra power to borrow to fund its entry into the First World War, also set a ceiling to the amount of public debt the country should have. It has been increased several times since. The US said that the retiree funds will be "made whole" once the ceiling has been raised and former government workers won't be affected.

A set of confidential federal audits accuse the nation’s five largest mortgage companies of defrauding taxpayers in their handling of foreclosures on homes purchased with government-backed loans, four officials briefed on the findings told The Huffington Post. The five separate investigations were conducted by the Department of Housing and Urban Development’s inspector general and examined Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, the sources said.

The audits accuse the five major lenders of violating the False Claims Act, a Civil War-era law crafted as a weapon against firms that swindle the government. The audits were completed between February and March, the sources said. The internal watchdog office at HUD referred its findings to the Department of Justice, which must now decide whether to file charges. The federal audits mark the latest fallout from the national foreclosure crisis that followed the end of a long-running housing bubble. Amid reports last year that many large lenders improperly accelerated foreclosure proceedings by failing to amass required paperwork, the federal agencies launched their own probes.

The resulting reports read like veritable indictments of major lenders, the sources said. State officials are now wielding the documents as leverage in their ongoing talks with mortgage companies aimed at forcing the firms to agree to pay fines to resolve allegations of routine violations in their handling of foreclosures. The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.

Two of the firms, including Bank of America, refused to cooperate with the investigations, according to the sources. The audit on Bank of America finds that the company -- the nation’s largest handler of home loans -- failed to correct faulty foreclosure practices even after imposing a moratorium that lifted last October. Back then, the bank said it was resuming foreclosures, having satisfied itself that prior problems had been solved.

According to the sources, the Wells Fargo investigation concludes that senior managers at the firm, the fourth-largest American bank by assets, broke civil laws. HUD’s inspector general interviewed a pair of South Carolina public notaries who improperly signed off on foreclosure filings for Wells, the sources said. The investigations dovetail with separate probes by state and federal agencies, who also have examined foreclosure filings and flawed mortgage practices amid widespread reports that major mortgage firms improperly initiated foreclosure proceedings on an unknown number of American homeowners.

The FHA, whose defaulted loans the inspector general probed, last May began scrutinizing whether mortgage firms properly treated troubled borrowers who fell behind on payments or whose homes were seized on loans insured by the agency. A unit of the Justice Department is examining faulty court filings in bankruptcy proceedings. Several states, including Illinois, are combing through foreclosure filings to gauge the extent of so-called "robo-signing" and other defective practices, including illegal home repossessions.

The internal audits have armed state officials with a powerful new weapon as they seek to extract what they describe as punitive fines from lawbreaking mortgage companies. A coalition of attorneys general from all 50 states and state bank supervisors have joined HUD, the Treasury Department, the Justice Department and the Federal Trade Commission in talks with the five largest mortgage servicers to settle allegations of illegal foreclosures and other shoddy practices.

Such processes "have potentially infected millions of foreclosures," Federal Deposit Insurance Corporation Chairman Sheila Bair told a Senate panel on Thursday. The five giant mortgage servicers, which collectively handle about three of every five home loans, offered during a contentious round of negotiations last Tuesday to pay $5 billion to set up a fund to help distressed borrowers and settle the allegations.

That offer -- also floated by the Office of the Comptroller of the Currency in February -- was deemed much too low by state and federal officials. Associate U.S. Attorney General Tom Perrelli, who has been leading the talks, last week threatened to show the banks the confidential audits so the firms knew the government side was not "playing around," one official involved in the negotiations said. He ultimately did not follow through, persuaded that the reports ought to remain confidential, sources said. Through a spokeswoman, Perrelli declined to comment.

Most of the targeted banks have not seen the audits, a federal official said, though they are generally aware of the findings. Some agencies involved in the talks are calling for the five banks to shell out as much as $30 billion, with even more costs to be incurred for improving their internal operations and modifying troubled borrowers’ home loans.

But even that number would fall short of legitimate compensation for the bank's harmful practices, reckons the nascent federal Bureau of Consumer Financial Protection. By taking shortcuts in processing troubled borrowers' home loans, the nation's five largest mortgage firms have directly saved themselves more than $20 billion since the housing crisis began in 2007, according to a confidential presentation prepared for state attorneys general by the agency and obtained by The Huffington Post in March. Those pushing for a larger package of fines argue that the foreclosure crisis has spawned broader -- and more costly -- social ills, from the dislocation of American families to the continued plunge in home prices, effectively wiping out household savings.

The Justice Department is now contemplating whether to use the HUD audits as a basis for civil and criminal enforcement actions, the sources said. The False Claims Act allows the government to recover damages worth three times the actual harm plus additional penalties. Justice officials will soon meet with the largest servicers and walk them through the allegations and potential liability each of them face, the sources said.

Earlier this month, Justice cited findings from HUD investigations in a lawsuit it filed against Deutsche Bank AG, one of the world's 10 biggest banks by assets, for at least $1 billion for defrauding taxpayers by "repeatedly" lying to FHA in securing taxpayer-backed insurance for thousands of shoddy mortgages. In March, HUD's inspector general found that more than 49 percent of loans underwritten by FHA-approved lenders in a sample did not conform to the agency's requirements.

Last October, HUD Secretary Shaun Donovan said his investigators found that numerous mortgage firms broke the agency’s rules when dealing with delinquent borrowers. He declined to be specific. The agency’s review later expanded to flawed foreclosure practices. FHA, a unit of HUD, could still take administrative action against those firms for breaking FHA rules based on its own probe. The confidential findings appear to bolster state and federal officials in their talks with the targeted banks. The knowledge that they may face False Claims Act suits, in addition to state actions based on a multitude of claims like fraud on local courts and consumer violations, will likely compel the banks to offer the government more money to resolve everything.

But even that may not be enough. Attorneys general in numerous states, armed with what they portray as incontrovertible evidence of mass robo-signings from preliminary investigations, are probing mortgage practices more closely.

The state of Illinois has begun examining potentially-fraudulent court filings, looking at the role played by a unit of Lender Processing Services. Nevada and Arizona already launched lawsuits against Bank of America. California is keen on launching its own suits, people familiar with the matter say. Delaware sent Mortgage Electronic Registration Systems Inc., which runs an electronic registry of mortgages, a subpoena demanding answers to 75 questions. And New York’s top law enforcer, Eric Schneiderman, wants to conduct a complete investigation into all facets of mortgage banking, from fraudulent lending to defective securitization practices to faulty foreclosure documents and illegal home seizures.

A review of about 2,800 loans that experienced foreclosure last year serviced by the nation's 14 largest mortgage firms found that at least two of them illegally foreclosed on the homes of "almost 50" active-duty military service members, a violation of federal law, according to a report this month from the Government Accountability Office. Those violations are likely only a small fraction of the number committed by home loan companies, experts say, citing the small sample examined by regulators.

In an April report on flawed mortgage servicing practices, federal bank supervisors said they "could not provide a reliable estimate of the number of foreclosures that should not have proceeded." The review of just 2,800 home loans in foreclosure compares with nearly 2.9 million homes that received a foreclosure filing last year, according to RealtyTrac, a California-based data provider. "The extent of the loss cannot be determined until there is a comprehensive review of the loan files and documentation of the process dealing with problem loans," Bair said last week, warning of damages that could take "years to materialize."

Home prices have fallen over the past year, reversing gains made early in the economic recovery, according to data providers Zillow.com and CoreLogic. Sales of new homes remain depressed, according to the Commerce Department. More than a quarter of homeowners with a mortgage owe more on that debt than their home is worth, according to Zillow.com. And more than 2 million homes are in foreclosure, according to Lender Processing Services.

Rather than punishing banks for misdeeds, the administration is now focused on helping troubled borrowers in the hope that it will stanch the flood of foreclosures and increase consumer confidence, officials involved in the negotiations said. Levying penalties can't accomplish that goal, an official involved in the foreclosure probe talks argued last week.

For their part, however, state officials want to levy fines, according to a confidential term sheet reviewed last week by HuffPost. Each state would then use the money as it desires, be it for facilitating short sales, reducing mortgage principal, or using the funds to help defaulted borrowers move from their homes into rentals. In a report last week, analysts at Moody’s Investors Service predicted that while the losses incurred by the banks will be "sizable," the credit rating agency does "not expect them to meaningfully impact capital."

New York’s attorney-general has opened an investigation into the way mortgages are securitised and sold to investors, and has requested meetings with at least three US banks to discuss the industry’s practices. Eric Schneiderman, who succeeded Andrew Cuomo as the state’s top lawyer earlier this year, has sought to meet executives from Bank of America, Goldman Sachs and Morgan Stanley, people familiar with the matter said.

A full-blown inquiry would mark Mr Schneiderman’s debut as Wall Street enforcer, a role at times relished by his predecessors, Eliot Spitzer and Mr Cuomo. It may also emerge as yet another headache for large banks already facing numerous legal and regulatory skirmishes stemming from their mortgage units’ actions before and during the financial crisis. However, the inquiry is unrelated to efforts by attorneys-general from all 50 states to reach a multibillion-dollar settlement with banks over allegations of improper foreclosure practices, the people said.

Lenders have drawn scrutiny on everything from shoddy underwriting standards to its methods in packaging mortgages and selling them to investors. During the housing bubble banks packaged thousands of home loans into bonds known as mortgage-backed securities and sold them to investors around the world. Many of the bonds received triple A ratings even though they were backed by high risk loans. The sharp fall in US property values beginning in 2006 triggered wide-scale defaults, which in turn devalued the bonds, often to junk status.

While the value of distressed assets has recovered somewhat from their crisis lows, the market for new securitisations remain at a standstill more than two years later. The US Securities and Exchange Commission is also investigating whether investors were misled about the home loans used to back securities.

The US attorney’s office in Manhattan recently accused Deutsche Bank and its US mortgage unit of recklessly endorsing risky loans for a federal mortgage insurance programme. And the Department of Housing and Urban Development’s inspector-general is probing whether banks improperly processed foreclosures bought with government-backed loans, a person familiar with the matter said.

Substantial damage to the fuel cores at two additional reactors of Japan's Fukushima Daiichi nuclear complex has taken place, operator Tokyo Electric Power Co. said Sunday, further complicating the already daunting task of bringing them to a safe shutdown while avoiding the release of high levels of radioactivity. The revelation followed an acknowledgment on Thursday that a similar meltdown of the core took place at unit No. 1.

Workers also found that the No. 1 unit's reactor building is flooded in the basement, reinforcing the suspicion that the containment vessel is damaged and leaking highly radioactive water. The revelations are likely to force an overhaul of the six- to nine-month blueprint for bringing the reactors to a safe shutdown stage and end the release of radioactive materials. The original plan, announced in mid-April, was due to be revised May 17.

The operator, known as Tepco, said the No. 1 unit lost its reactor core 16 hours after the plant was struck by a magnitude-9 earthquake and a giant tsunami on the afternoon of March 11. The pressure vessel a cylindrical steel container that holds nuclear fuel, "is likely to be damaged and leaking water at units Nos. 2 and 3," said Junichi Matsumoto, Tepco spokesman on nuclear issues, in a news briefing Sunday. He also said there could be far less cooling water in the pressure vessels of Nos. 2 and 3, indicating there are holes at the bottom of these vessels, with thousands of tons of water pumped into these reactors mostly leaking out.

Tepco found the basement of the unit No. 1 reactor building flooded with 4.2 meters of water. It isn't clear where the water came from, but leaks are suspected in pipes running in and out of the containment vessel, a beaker-shaped steel structure that holds the pressure vessel. The water flooding the basement is believed to be highly radioactive. Workers were unable to observe the flooding situation because of strong radiation coming out of the water, Tepco said.

A survey conducted by an unmanned robot Friday found radiation levels of 1,000 to 2,000 millisieverts per hour in some parts of the ground level of unit No. 1, a level that would be highly dangerous for any worker nearby. Japan has placed an annual allowable dosage limit of 250 millisieverts for workers. The high level of radioactivity means even more challenges for Tepco's bid to set up a continuous cooling system that won't threaten radiation leaks into the environment.

Tepco separately released its analysis on the timeline of the meltdown at unit No. 1. According to the analysis, the reactor core, or the nuclear fuel, was exposed to the air within five hours after the plant was struck by the earthquake. The temperature inside the core reached 2,800 degrees Celsius in six hours, causing the fuel pellets to melt away rapidly. Within 16 hours, the reactor core melted, dropped to the bottom of the pressure vessel and created a hole there. By then, an operation to pump water into the reactor was under way. This prevented the worst-case scenario, in which the overheating fuel would melt its way through the vessels and discharge large volumes of radiation outside.

The nuclear industry lacks a technical definition for a full meltdown, but the term is generally understood to mean that radioactive fuel has breached containment measures, resulting in a massive release of fuel. "Without the injection of water [by fire trucks], a more disastrous event could have ensued," said Mr. Matsumoto.

Tepco also released its analysis of a hydrogen explosion that occurred at unit No. 4, despite the fact that the unit was in maintenance and that nuclear fuel stored in the storage pool was largely intact. According to Tepco, hyrogen produced in the overheating of the reactor core at unit 3 flowed through a gas-treatment line and entered unit No. 4 because of a breakdown of valves. Hydrogen leaked from ducts in the second, third and fourth floors of the reactor building at unit No. 4 and ignited a massive explosion.

Japan says it will shut down reactors at the Fukushima-1 power plant by the end of the year. The announcement comes despite revelations that a natural disaster in March damaged the nuclear facility worse than earlier believed.

Serious troubles continue to beleaguer the operators of the Japanese nuclear power plant in Fukushima prefecture that was crippled by an earthquake and tsunami. But Prime Minister Naoto Kan told parliament Monday the damaged reactors will be shut down sometime this year.

Kan says the timeline for bringing the four damaged reactors into a state of cold shutdown will not be changed. He insists that will happen in six to nine months. That timetable is consistent with a plan Tokyo Electric Power Company announced one month ago. But since then it has become apparent that the reactors suffered worse damage than earlier thought. The number one reactor, it is now acknowledged, suffered a meltdown soon after the March 11 earthquake and tsunami devastated northeastern Japan.

Japanese experts say the fuel rods inside the reactor were fully exposed to the air and melted. However, the fuel apparently dropped to the bottom of the containment vessel, preventing it from going into a full meltdown stage. Recent attempts to keep the reactor cool by filling the containment chamber with water have run into difficulty. The power company, known as TEPCO, says thousands of tons of highly radioactive contaminated water have leaked through holes created by melted fuel into the reactor basement.

TEPCO is scheduled to release a review of its shutdown plan on Tuesday. On Sunday, the utility acknowledged that the fuel cores of two additional reactors at Fukushima-1 had also been substantially damaged and cooling water is leaking. High radiation levels near the units are hampering critical repairs as workers can spend only a limited amount of time there to avoid overexposure.

The world’s worst nuclear accident in a quarter of a century was triggered by the magnitude 9.0 earthquake and huge tsunami that devastated Japan’s northeastern Pacific coast. Police say 25,000 people were killed or are still missing. Concerns about radiation emanating from the plant forced the evacuation of numerous communities.

On Sunday, thousands more residents beyond the previously established 20-kilometer evacuation zone left their homes. Authorities say atmospheric conditions have raised long-term safety concerns about radiation levels in their towns and villages. About 80,000 people were initially forced out of their homes within the original no-go zone. They have yet to be informed when they might be able to reside there again.

Analysts say the nuclear crisis alone could cost Japan between $50 billion and $100 billion. Beyond that, the country, which has been in the economic doldrums for years, needs to figure out how to pay for the equally significant cost of rebuilding hundreds of coastal communities that were washed away by tsunami and other cities that suffered substantial quake damage. Some economists predict that will cost an additional $200 billion.

The nuclear power plant, lawyers argued, could not withstand the kind of major earthquake that new seismic research now suggested was likely. If such a quake struck, electrical power could fail, along with backup generators, crippling the cooling system, the lawyers predicted. The reactors would then suffer a meltdown and start spewing radiation into the air and sea. Tens of thousands in the area would be forced to flee.

Although the predictions sound eerily like the sequence of events at the Fukushima Daiichi plant following the March 11 earthquake and tsunami, the lawsuit was filed nearly a decade ago to shut down another plant, long considered the most dangerous in Japan — the Hamaoka station.

It was one of several quixotic legal battles waged — and lost — in a long attempt to improve nuclear safety and force Japan’s power companies, nuclear regulators, and courts to confront the dangers posed by earthquakes and tsunamis on some of the world’s most seismically active ground.

The lawsuits reveal a disturbing pattern in which operators underestimated or hid seismic dangers to avoid costly upgrades and keep operating. And the fact that virtually all these suits were unsuccessful reinforces the widespread belief in Japan that a culture of collusion supporting nuclear power, including the government, nuclear regulators and plant operators, extends to the courts as well.

Yuichi Kaido, who represented the plaintiffs in the Hamaoka suit, which they lost in a district court in 2007, said that victory could have led to stricter earthquake, tsunami and backup generator standards at plants nationwide. "This accident could have been prevented," Mr. Kaido, also the secretary general of the Japan Federation of Bar Associations, said of Fukushima Daiichi. The operator of the plant, Chubu Electric Power Company, temporarily shut down Hamaoka’s two active reactors over the weekend, following an extraordinary request by Prime Minister Naoto Kan.

After strengthening the plant’s defenses against earthquakes and tsunamis, a process that could take a couple of years, the utility is expected to restart the plant. Japan’s plants are all located in coastal areas, making them vulnerable to both quakes and tsunamis. The tsunami is believed to have caused the worst damage at the Fukushima plant, though evidence has begun emerging that the quake may have damaged critical equipment before the waves struck.

The disaster at Fukushima Daiichi, the worst nuclear accident since Chernobyl, directly led to the suspension of Hamaoka here in Omaezaki, a city about 120 miles southwest of Tokyo. But Mr. Kan’s decision was also clearly influenced by a campaign, over decades, by small groups of protesters, lawyers and scientists, who sued the government or operators here and elsewhere.

They were largely ignored by the public. Harassment by neighbors, warnings by employers, and the reluctance of young Japanese to join antinuclear groups have diminished their numbers. But since the disaster at Fukushima and especially the suspension of Hamaoka, the aging protesters are now heralded as truth-tellers, while members of the nuclear establishment are being demonized.

On Friday, as Chubu Electric began shutting down a reactor at 10 a.m., Eiichi Nagano, 90, and Yoshika Shiratori, 78, were battling strong winds on the shoreline leading to the plant here. Mr. Shiratori, a leader of the lawsuit, led the way as Mr. Nagano followed with a sprightly gait despite a bent back. The two men scrambled up a dune, stopping only before a "No Trespassing" sign.

"Of course, we’re pleased about the suspension," Mr. Nagano said, as the strong wind seemed to threaten to topple him. "But if we had done more, if our voices had been louder, we could have prevented the disaster at Fukushima Daiichi. Fukushima was sacrificed so that Hamaoka could be suspended."

Unheeded WarningsIn 1976, a resource-poor Japan still reeling from the shocks of the oil crisis was committed fully to nuclear power to achieve greater energy independence, a path from which it never strayed despite growing doubts in the United States and Europe.

That year, as Hamaoka’s No. 1 reactor started operating and No. 2 was under construction, Katsuhiko Ishibashi, a seismologist and now professor emeritus at Kobe University, publicized research showing that the plant lay directly above an active earthquake zone where two tectonic plates met. Over the years, further research would back up Mr. Ishibashi’s assessment, culminating in a prediction last year by the government’s own experts that there was a nearly 90 percent chance that a magnitude 8.0 quake would hit this area within the next 30 years.

After the 1995 Kobe earthquake, residents in this area began organizing protests against Chubu Electric. They eventually sued the utility in 2003 to stop the plant’s reactors, which had increased to four by then, arguing that the facility’s quake-resistance standards were simply inadequate in light of the new seismic predictions.

In 2007, a district court ruled against the plaintiffs, finding no problems with the safety assessments and measures at Hamaoka. The court appeared to rely greatly on the testimony of Haruki Madarame, a University of Tokyo professor and promoter of nuclear energy, who since April 2010 has been the chairman of the Nuclear Safety Commission of Japan, one of the nation’s two main nuclear regulators.

Testifying for Chubu Electric, Mr. Madarame brushed away the possibility that two backup generators would fail simultaneously. He said that worrying about such possibilities would "make it impossible to ever build anything." After the Fukushima Daiichi disaster, Mr. Madarame apologized for this earlier comment under questioning in Parliament. "As someone who promoted nuclear power, I am willing to apologize personally," he said.

In the early days of nuclear power generation in Japan, the government and nuclear plant operators assured the public of the safety of plants by promising that they would not be located on top of active fault lines, Mr. Ishibashi, the seismologist, said in an interview. But he said that advances in seismology have led to the gradual discovery of active fault lines under or near plants, creating an inherent problem for the operators and the government and leading to an inevitable conclusion for critics of nuclear power. "The Japanese archipelago is a place where you shouldn’t build nuclear plants," Mr. Ishibashi said.

Advances in seismology also led to lawsuits elsewhere. Only two courts have issued rulings in favor of plaintiffs, but those were later overturned by higher courts. Since the late 1970s, 14 major lawsuits have been filed against the government or plant operators in Japan, which until March 11 had 54 reactors at 18 plants.. In one of the two cases, residents near the Shika nuclear plant in Ishikawa, a prefecture facing the Sea of Japan, sued to shut down a new reactor there in 1999. They argued that the reactor, built near a fault line, had been designed according to outdated quake-resistance standards.

A district court ordered the shutdown of the plant in 2006, ruling that the operator, Hokuriku Electric Power Company, had not proved that its new reactor met adequate quake-resistance standards, given new knowledge about the area’s earthquake activity.

Kenichi Ido, the chief judge at the district court who is now a lawyer in private practice, said that, in general, it was difficult for plaintiffs to prove that a plant was dangerous. What is more, because of the technical complexities surrounding nuclear plants, judges effectively tended to side with a national strategy of promoting nuclear power, he said. "I think it can’t be denied that a psychology favoring the safer path comes into play," Mr. Ido said. "Judges are less likely to invite criticism by siding and erring with the government than by sympathizing and erring with a small group of experts."

That appears to have happened when a higher court reversed the decision in 2009 and allowed Hokuriku Electric to keep operating the reactor. In that decision, the court ruled that the plant was safe because it met new standards for Japan’s nuclear plants issued in 2006. Critics say that this exposed the main weakness in Japan’s nuclear power industry: weak oversight.

The 2006 guidelines had been set by a government panel composed of many experts with ties to nuclear operators. Instead of setting stringent industrywide standards, the guidelines effectively left it to operators to check whether their plants met new standards. In 2008, the Nuclear and Industrial Safety Agency, Japan’s main nuclear regulator, said that all the country’s reactors met the new quake standards and did not order any upgrades.

Concealing FactsOther lawsuits reveal how operators have dealt with the discovery of active fault lines by underestimating their importance or concealing them outright, even as nuclear regulators remained passive. For 12 years, Yasue Ashihara has led a group of local residents in a long and lonely court battle to halt operations of the Shimane nuclear plant, which sits less than five miles from Matsue, a city of 200,000 people in western Japan.

Ms. Ashihara’s fight against the plant’s operator, Chugoku Electric Power, revolves around not only the discovery of a previously unknown active fault line, but an odd tug of war between her group and the company about the fault’s length, and thus the strength of the earthquakes it is capable of producing. The utility has slowly accepted the contention of Ms. Ashihara’s group by repeatedly increasing its estimate of the size of the fault. Yet a district court last year ruled in favor of Chugoku Electric Power, accepting its argument that its estimates were based on the better scientific analysis.

"We jokingly refer to it as the ever-growing fault line," said Ms. Ashihara, 58, who works as a caregiver for the elderly. "But what it really means is that Chugoku Electric does not know how strong an earthquake could strike here." Her group filed the lawsuit in 1999, a year after the operator suddenly announced that it had detected a five-mile-long fault near the plant, reversing decades of claims that the plant’s vicinity was free of active faults.

Chugoku Electric said the fault was too small to produce an earthquake strong enough to threaten the plant, but Ms. Ashihara’s suit cited new research showing the fault line could in fact be much longer, and produce a much stronger earthquake. It got a boost in 2006, when a seismologist announced that a test trench that he had dug showed the fault line to be at least 12 miles long, capable of causing an earthquake of magnitude 7.1.

After initially resisting, the company reversed its position three years ago to accept the finding. But a spokesman for the Chugoku Electric said the plant was strong enough to withstand an earthquake of this size without retrofitting. "This plant sits on solid bedrock," said Hiroyuki Fukada, assistant director of the visitor center for the Shimane plant, adding that it had a 20-foot, ferro-concrete foundation. "It is safe enough for at least a 7.1 earthquake."

However, researchers now say the fault line may extend undersea at least 18 miles, long enough to produce a magnitude 7.4 earthquake. This prompted Ms. Ashihara’s group to appeal last year’s ruling. Ms. Ashihara said she has waged her long fight because she believes the company is understating the danger to her city. But she says she has at times felt ostracized from this tightly bound community, with relatives frowning upon her drawing attention to herself.

Still, she said she hoped the shutdown of Hamaoka would help boost her case. She said local residents had already been growing skeptical of the Shimane plant’s safety after revelations last year that the operator falsified inspection records, forcing it to shut down one of the plant’s three reactors.

In Ms. Ashihara’s case, the nuclear operator acknowledged the existence of the active fault line in court. In the case of Kashiwazaki-Kariwa nuclear plant in Niigata, a prefecture facing the Sea of Japan, Tokyo Electric Power Company, or Tepco, the utility that also operates Fukushima Daiichi, did not disclose the existence of an active fault line until an earthquake forced it to.

In 1979, residents sued the government to try overturn its decision granting Tepco a license to build a plant there. They argued that nuclear regulators had not performed proper inspections of the area’s geology — an accusation that the government would acknowledge years later — and that an active fault line nearby made the plant dangerous. In 2005, the Tokyo High Court ruled against the plaintiffs, concluding that no such fault line existed.

But in 2007, after a 6.8-magnitude earthquake damaged the plant, causing a fire and radiation leaks, Tepco admitted that, in 2003, it had determined the existence of a 12-mile-long active fault line in the sea nearby.

Weighing the ChancesThe decision to suspend Hamaoka has immediately raised doubts about whether other plants should be allowed to continue operating. The government based its request on the prediction that there is a nearly 90 percent chance that a magnitude 8.0 earthquake will hit this area within the next 30 years. But critics have said that such predictions may even underestimate the case, pointing to the case of Fukushima Daiichi, where the risk of a similar quake occurring had been considered nearly zero.

"This is ridiculous," said Hiroaki Koide, an assistant professor at the Research Reactor Institute at Kyoto University. "If anything, Fukushima shows us how unforeseen disasters keep happening. There are still too many things about earthquakes that we don’t understand." Until March 11, Mr. Koide had been relegated to the fringes as someone whose ideas were considered just too out of step with the mainstream. Today, he has become an accepted voice of conscience in a nation re-examining its nuclear program.

For the ordinary Japanese who waged lonely battles against the nuclear establishment for decades — mostly graying men like Mr. Nagano and Mr. Shiratori — the Hamaoka plant’s suspension has also given them their moment in the sun. The two worried, however, that the government will allow Hamaoka to reopen once Chubu Electric has strengthened defenses against tsunamis. Chubu Electric announced that it would erect a 49-foot high seawall in front of the plant, which is protected only by a sand dune.

"Building a flimsy seawall isn’t enough," Mr. Shiratori said. "We have to keep going after Chubu Electric in court and shut down the plant permanently." "That’s right," Mr. Nagano said, the smallness of his bent frame emphasized by the enormous plant behind him. "This is only the beginning."

120 comments:

Ilargi has taken flack over the past year from shills and trolls for saying that soon you won't recognize America. Well, I guess it comes down to what your definition of "recognize" is. But if you wish to read some depressing front line descriptions of the real collapse we are in, you might turn to the redoubtable Eric deCarbonnel who broke and analyzed (with a remarkable video) the Fed's put option scam on treasury bonds.

Obvious sequel to killing the actor who had the midnight (graveyard?) shift playing OBL. Expect this war to escalate continuously. China allying itself now with Pakistan. So is Saudi. US obviously wants to try to seize Pakistan's nuclear arsenal, but I doubt it would be successful. Does Pakistan have a coast on the north Atlantic? Still trying to figure out NATO.

NATO is in Afghanistan because one of its member states was attacked from there on 9/11/2001. (I'm giving the pravda here, not what you or I believe.)

The Afghan-Paki border is so ill-defined that anyone looking for a border incident has extremely plausible deniability. I actually find it quite plausible that the Paki army went looking for some PR points and fired on the first chopper that they could claim was interloping.

The Empire has always made extensive use of foreign legions to enforce its will, going back to at least the Persians. NATO just happens to be a present day example. Forcing the European forces into AfPak extended their charter so now they could be used anywhere, I suppose.

Regarding the Usanistani national decline, I just completed a trip across Interstate Highway 80 from Iowa to California. The highway itself is I would say in the best shape I seen it in over a decade of traveling the route. Almost every burg on the highway has several new and mostly upscale motels. Occupancy rates seemed to be well short of full. I doubt many of those investments will ever pay off. Traffic was substantially lighter than the pre-Lehman days and not all that much heavier than the month after 9/11. It was mostly trucks and heavy duty pickups.

I think I would have to give the award for most third-worldish city along the route to Wendover on the Utah-Nevada border right next to the famous Bonneville Salt Flats. Those salt flats treated me and fellow travelers to something I had never heard about or ever considered, a salt storm. A wind so strong that it lofted a clump of salt that exploded on my front fender. Meanwhile they issued a winter storm warning for the Donner Pass area. Climate change arriving now in YOUR neighborhood.

Even if one were (foolish enough) to accept the official government conspiracy theory, it would be a real stretch to claim that the government of Afghanistan attacked the USA, thus pulling in NATO.

The refusal to extradite an alleged criminal is not usually considered to be an act of war. For example, the USA did not start bombing France because of their refusal to turn over Roman Polanski.

From Wikipedia / OBL

It was not until after the bombing of Afghanistan began in October 2001 that the Taliban finally did offer to turn over Osama bin Laden to a third-party country for trial, in return for the United States ending the bombing and providing evidence that Osama bin Laden was involved in the September 11 attacks. This offer was rejected by President Bush stating that this was no longer negotiable with Bush responding "there's no need to discuss innocence or guilt. We know he's guilty."

Ah Ha! I know how the US will eliminate its debt! Congress is debating a bill giving the President the power to go to war anywhere IN THE WORLD INCLUDING INSIDE THE US. That bill should keep the creditors quiet for a little while:)

There are few reasons a global financial thug like Dominique Strauss-Kahn got thrown under the bus.

All players in the U.S. 'puppet' government knew exactly who he is and what he does. They would never touch the guy on their own accord, they are all just rent-boys on the global Criminal Class payroll. Yoa, where's Eric 'Buttplug' Holder when you need him?

No, I'd venture to guess he was either caught skimming the operation (IMF) or, drum roll, it was 'failure to perform'.

Another thought, he didn't squeeze enough 'auserity' fast enough out of the P.I.G.S. for his Lords & Masters in the top .01% of wealth or he wasn't as ruthless as say someone like his Toadie Lackey John Lipsky was in Chile. He was 'pulling his punches' on his European homeys cause they got more class and deserve more respect than say those low class immitation European South American bastards.

He is not in Rikers because of jumping the maid, that is a non issue, it could have routinely been covered up. Stuff like that always is at that level of criminality.

No, DSK is now serving as An Example to the rest of the Global Financial Wreaking Crew, steal from The House or fail to meet expectations, go straight to Jail, do not pass Go.

One last outside possiblity, he goes to jail, only to 'have a fatal heart attack' and his body is immediately creamated like Ken Lays' was so he can secretly live in South American, the Land of Martin Bormann._

I enjoyed el gall's Market Skeptics link, but as someone who grew up in Michigan it pains me that large swathes of my former home are so far down the collapse rabbit hole.

My favorite quote from the article, particularly since I have the fortune of living in a barely affected area, is:

If you still live in an area of the United States that is prosperous, do not mock the cities that you are about to read about. The cold, hard reality of the matter is that economic decline and economic despair are spreading rapidly AND THEY WILL COME TO YOUR AREA SOON ENOUGH. Right now we are still talking about "American hellholes", but if the long-term economic trends that are destroying this nation are not turned around eventually we will just be talking about one gigantic "American hellhole". In the end, no area of the country will completely escape the economic hell that is coming.

I feel that I have fairly and honorably won the title of Chief Conspiracy Theorist on this blog site and can wear the tallest tin foil hat with distinction.

But with the DSK fiasco, excuse me, I want some evidence.

You want to talk 9/11 we can start with this

http://www.youtube.com/watch?v=PNK1V6S2cbo

or this

http://video.google.com/videoplay?docid=3664073116607499063#

Get me started on JFK or MLK and Ilargi will fly to Mexico just to put a bullet through my computer (I am sure a nice, clean head shot):

But DSK. I want evidence.

Here is a description of the victim from a NY Post article:

Meanwhile, neighbors of the maid described her as an "extremely quiet," French-speaking immigrant from the West African nation of Guinea who lives with her teen daughter in The Bronx."She is extremely quiet. She only smiles at certain people," said neighbor Mark Gangadeen, adding that she wears a head scarf.Another neighbor, Assetou Kamara, 33, said the woman is a devout Muslim.The maid's brother said his sister "is very tired and needs a rest."She's a wonderful, hardworking woman, and she's in a lot of pain," the sibling said, adding that he has encouraged her to hire a lawyer.Watching French TV, where reports blared that the alleged attack was a political set-up by Strauss-Kahn's enemies, the brother said, "I don't think that's fair. My sister's a very nice woman and not capable of that."

Doesn't sound to me like a hooker set for a sting operation. As to DSK not squeezing the pissants hard enough, he was doing everything he could, but for the moment it is the local Quisling governments that have to turn the thumb screws.

I think that DSK just committed one atrocity to many, and the law of averages caught up with him. And I have learned recently that it is much easier for the oligarchy to get away with this crap in France than currently in NYC. I want to see evidence to the contrary.

In NYC if the prosecutor assigned to the case doesn't think a crime was committed, nothing happen, period.

I know and have known prosecutors socially over the years, most are political animals to the core. They are usually angling for higher political office in larger jurisdictions. If the case helps their career, it gets attention. If it hurts their career prospects, it is never heard from again. Think 'Bonfire of the Vanities'. Prosecuting Big Fish usually helps, but not if they can bite back by 'reaching out and touching someone'.

If it had been Mayor Bloomberg instead of DSK and a Muslim maid had accused him of the exact same thing in the exact same hotel, the procecutor would think long and hard about whether it was good for his career or bad.

That's a hard call because the prosecutor (remember him) is weighting this in terms of their career enhancement, not in terms of 'justice'. This is Duhmerica after all, not the Land of Personal Integrity.

I'm pretty sure I can guess who New Yorkers would believe if it was the Jewish Mayor vs the Muslim Maid.

If the security camera's have DSK dead to right, he's toast, not because it was wrong but because he becomes a liability for his Masters pimping the IMF (or as Max K put it Insane Maid Fuckers).

So to summarize, the NYC prosecutor made the decision and if someone higher up the Food Chain called them up and said, "prosecute DSK and your career is history", nothing would have happened.

This happens every single day throughout the Land of the Brave and the Home of the 'Free'

The maid in question doesn't have to be 'hooker material', that's not the criteria for prosecution.

"...Manhattan district attorney Cyrus Vance set out the case against Strauss-Kahn.."

Hmm, interesting name.

Like charging Eliot Spitzer, there where dozens of other men on the 'client list' that the prosecutor had in their possession and they only charged him. What are the chances that other Washington big fish'somebodys' were on the client list?

Very, very high. But the prosecutor only had the 'green light' on Eliot, not the Full Monty.

I'm disappointed in you man! I bet the under (line was over 12.5, less than 12) that you would have a comment or two about today's picture. Less than an hour to go and nothing!! Huge upset, imo or are you part of the set up?.

The articles about Greece are very interesting. Greece has €340bn of debt and annual government revenue of €40bn. This is truly outrageous. Any banks who loaned anything over the first €40bn of that lot deserve to get nothing back, IMHO.

I was as a kid living in Athens for a while around 1963-65. I remember their then king marrying a Danish princess and prince Charles staying nearby at Glyfada. It was quite a grim society and no one ever smiled - or so it seemed to us. Later, I learned that they had had a civil war not so very much earlier and the hills around Athens had been controlled by Communists/partisans. We went for walks there and the hills were serrated by lines of trenches. Apparently, kidnapping had been quite common at one time.

One evening at a fish restaurant in Piraeus, we saw some Greeks at a neighbouring table tell their boys to piss into the sea from just behind a table occupied by German tourists. The boys thought it was fun. I don't think the Germans did. I guess the Greek parents remembered the German occupation and thought that these tourists owed them something.

Much later, around 1970, I went to Athens on a cheap flight and was told by some girl that the nightlife in Mykonos was great and so I went there. In fact, I got off the boat prematurely at Tinos - a very religious place without any nightlife. It took me a couple of days to work out that I was on the wrong island - no one spoke English at that time. Four Greeks girls took me to Mykanos and we shared a house for a week. When the girls went back to Athens, I moved into a hostel and discovered that Mykanos was the gay capital of the Mediterranean.

In 1978, in the middle of the Iranian Revolution, I went to Athens for a job interview. I did not get the job but I did go for a walk around the Acropolis. I think I had the whole place all to myself for the whole afternoon. The view of the sea was fantastic.

I have been back since and can confirm that Athens bears little resemblance to the place it had been. I really cannot see things unwinding to their earlier simplicity without a lot of anguish. There will be a massive migration out of Greece. The rich Greek ship-owners had always been based in London anyway as they knew that the party would not last.

I find it interesting that the NYT article on officials concealing information on Fukushima has so far garnered only 32 comments; a very low number for any contentious NYT article. Mine, #25, is very rude; but the put it up without quibble; so I doubt they're filtering much.

Re Fukushima; I just posted this over on Sharon Astyk's but it belongs here, too: ------------------------

Incidentally Sharon, there's another aspect to this story, still not being covered, which I find possibly the most disturbing piece of it all.

I'm an evolutionary ecologist; not a physicist. That does entail solid familiarity with geology and basic atomic physics; since isotope behavior is critical to aging fossils and Carbon 14 dating is used in climate and anthropology all the time; plus labeled oxygen and nitrogen, radio-labeled or otherwise, are used to track nutrient cycles extensively; plus, I'm seriously trained in the scientific method, and the rules of evidence.

It was absolutely clear to me, immediately, that there had been a meltdown and extensive release of core material very soon after the tsunami. Rules of evidence allow no other conclusion.

So- where in hell are the physicists from our universities? They HAVE to have known this. And they have, basically universally, kept their mouths shut. And yes- this has meant harm to many people- the evacuation limits Japan instituted were far far too small for safety from cancer. Those folks won't die soon. But they will die.

Because the Japanese didn't want a "panic". And our scientists (nobody is going to listen to me, I'm well aware) - were complicit.

Yeah; that bothers me, a lot. What about the "Science Blogs" folk? Anybody here speak up? It's time to say why not, if not.

Or, as one of the Navy Seals from the Bin laden execution said; "It's not that we're so special; it's that everyone else sucks so bad." Are our physicists just so badly trained they didn't KNOW that cesium and I-131 outside can only mean a core breach?

Greetings. I was wondering if you have any insight into what might happen in Egypt now? Recently there were religious protests & their was a huge outpouring of anger against Israel as well. Do you reckon the Muslim brotherhood will win the upcoming elections?

@ Board

I think everyone in Europe knows by now that debt 'reprofiling' is coming but they continue to jawbone in order to make the Market grow complacent, bored. To prevent a psychological contagion. I think Martin Wolf exemplified the position well when he said that a crisis you are prepared for tend to be less damaging or something like that.

Doesn't mean the losses won't be real but they can always change accounting rules and let the ECB recapitalize banks.

It's a grand game but people are losing confidence, one person at a time as seen by the substantial recent protests in Spain that were barely covered by the press.

All in all, things are shaping up for a substantial decline. The only question is the time factor, much will depend on Market psychology and declining net energy output of oil.

"Urban and suburban have lost 1/4 of their hospital emergency departments over the last 20 years.

"Emergency departments were most likely to have closed if they served large numbers of the poor, were at commercially operated hospitals, were in hospitals with skimpy profit margins or operated in highly competitive markets, the researchers found."

How long do you suppose it will take for our society to admit that some things- medicine for one- should simply never be run on a "for profit" basis?

The kinetic energy that was used to create the perfect liquid is going to re-emerge from the potential energy, (perfect liquid), as jets of particles and photons. Space for expansion is required for the creation of particles and to have kinetic energy.Some of the kinetic energy will be converted to photons. Some of the kinetic energy will also be converted to making unstable particles with mass that will also decay to photons and to stable particles.

Photons are produced from the kinetic energy of particles.

I’ll speculate that if we wanted to stabilize the perfect liquid then it would need to be shielded from the dark energy. ( Does anyone want a black hole?)

I would imagine that these people have a pretty good idea of what it is like in California. Are conditions that much worse where they come from? I have never been to Latin America so I have no idea.

I was wondering if you have any insight into what might happen in Egypt now?

Hi VK,

I am quite ill-informed about what is going on in Egypt as I don't really have any private information sources. However, I will say that Egyptians are generally able to put up with a lot more crap than others, say the Greeks, can. They are a race of peasants and can suffer just like the Russians. Things have to get desperate before they take to the streets. Christian-Moslem strife is largely either because resources are so scarce that it is a zero-sum game or because some outsiders (e.g. Saudi Arabia) have a vested interest in destabilising the place. The people are not completely stupid and they know that the Moslem Brotherhood has no solutions to offer - just a new parasite class to replace the existing one. The anger about Israel has been held in check for a generation and I think that they have had enough. Once again, Saudi Arabia, Israel (and by default the USA) have common interests.

Recently, Egypt reestablished diplomatic relations with Iran - they said that only the USA and Israel don't have such relations. I think that is definitely a step in the right direction - if the word democracy has any meaning whatsoever. I mean, the Egyptians and the Persians have had diplomatic relations for thousands of years so why stop now?

One thing I am convinced of however is that they should put on trial the top 100 officers of the Egyptian army for being traitors to their country. That would convince me that things are changing.

To give you an idea of the schizophrenic culture of the Egyptian Military, I recently heard that at their officer-training college, the classrooms dedicated to teaching hebrew have plates with the phrase "Language of the enemy" لغة العدو on the doors. Meanwhile, the top brass are eating out of the hands of these alleged enemies.

What really convinced everyone that Mubarak was crazy was his last broadcast speech when he started telling everyone what a hero he was for having bombed the Israelis in Sinai in 1973 - Yom Kippur War. It was a big mistake by him and they had no choice other than to arrest him and his brats.

The #2 person on one of my favorite podcasts, Nancy Updike of This American Life, went to Egypt last week and reported back as to what she observed about the people politically. Everybody is forming parties and going to meetings. Interesting story about half way through the one hour podcast.

http://www.thisamericanlife.org/

episode 434, This Week

AWITW

I agree with you that no one in a position to pick up the phone and tell the DA to back off has done so. (I too noticed the name Cyrus Vance Jr. For those of who don't recognize the name, his father was Secretary of State under Carter.) Obviously looking for higher political office, and nailing this ugly, frog like pervert might be an asset. TPTB must be tired of DKS's crap. And like the name Valdemort, he did mouth that ugly H word which may never be spoken, so their enthusiasm for him might be dampened enough to leave him under the bus. The makings of a modern Greek tragedy, Talk about Hubris! But my contention is that TPTB are just taking a passive role in this and didn't set it up as a sting.

Elliot Spitzer was a different deal. They had him and his credit card electronics under a microscope. They undoubtedly knew that he liked the working girls and were just waiting to get the goods on him. Once again not a sting, but they took a very active role in selective enforcement.

I think it bears pointing out that a fair amount of the reason for the dollar's bounce-back is because the euro is so very screwed right now.

We have frequently said that both of those moves would happen and explained why. As I pointed out in the talks I did on my recent European tour, capital flight on sovereign debt default risk will be one aspect of support for the dollar. Money flows from where the fear is to where it is not, on a knee-jerk flight to safety. One look at European CDS spreads or bond rates for the European periphery, in comparison with the US, is enough to see where market fear is focused.

The other major aspect that will prop up the dollar is dollar-denominated debt deflation (TAE intro from July 2010 on relative curency values). There is more dollar-denominated debt than any other kind, hence as debtors attempt to pay it down, a demand for dollars will be created.

Stoneleigh: "We have frequently said that both of those moves would happen and explained why."

You absolutely did/have, I remember well.

"As I pointed out in the talks I did on my recent European tour, capital flight on sovereign debt default risk will be one aspect of support for the dollar. Money flows from where the fear is to where it is not, on a knee-jerk flight to safety"

Now- we've got a slightly different situation. The Rethuglies are stonewalling on raising the US debt limit; and lots of people are taking them seriously.

In which case, the dollar, and US Treasuries, look slightly risky. They've shown themselves quite willing to play chicken until they win; and in this case, I'm not clear on what "win" they're looking for; but none of the alternatives look good for any economic recovery. (IMHO).

So; I'm thinking. The Owners do orchestrate when they can. IF they are orchestrating all this monkeybusiness; why?

My only answer at the moment; to push capital into commodities, and force the prices there up?

In any event; do you think a "flight to safety" is likely to go to commodities as well as to the dollar (in the nearish future)?

All the commodities seem like wide open playground to me these days; rather easy for anyone with a trillion or two to manipulate, with tremendous profits; which can instantly be translated into "real" estate/physical ownerships.

Do you think the historic inverse relationship between gold and dollars will hold or will gold and silver continue to go up as the dollar goes up on flight to safety fears.

This would be new ground for both to rise at the same time.

I'm not a holder of PM other than a few old coins and grandma's teapot but as a spectator sport it's interesting, the goldbugs will be stupified at the dollar holding up. Max K is running out of excuses for why the dollar hasn't tanked yet, any=day=now is wearing thin. His head will explode if you're right about the dollar rising on Fear. He has become a man possessed about silver and has lost perspective on the Big Picture. He and many others analyze the global financial meltdown with logic and it's not logical, it's 'herdfear' (a new word) driven._

@Greenpa... "So; I'm thinking. The Owners do orchestrate when they can. IF they are orchestrating all this monkeybusiness; why?"

I'd say using the debt ceiling hoopla mainly as part of the pre-game warmup for targeted austerity measures. Most investors know that the ceiling will be lifted no matter what, but the public is being sold fear by both parties that a) the public deficits must be dealt with via austerity over time and b) the public debt must be allowed to continue rising for the time being.

That should also help to scare significant capital out of risk assets (including commodities) and into the dollar and Treasury market. In a tug of war monetary analogy, they simply have to release their grip on the rope a bit and let the natural pull from the currency demand side take over for awhile. Meanwhile, the political games will continue on in full force.

The value of fiat money is always relative. You can't just say that the Euro is going up or down. It is a meaningless statement without stating relative to what exactly.

There are (at least) two aspects to the value of fiat money. One is what it will buy you in your locale, and one is what it can be exchanged for in other currencies. These two values can be totally out of whack. When I first went to Peru six years ago, I was mind boggled by how cheap most stuff was in terms of USD. For example, you could buy a lunch consisting of a quarter roasted chicken, a bowl of soup, large portion of French fries, and salad bar in a clean restaurant for USD 1.75.

Stoneleigh warns that forex will experience great volatility during the coming deleveraging, and people who have their savings in one country but are living in another, could have some serious problems with this.

Re The DSK fiasco

I still don't feel that this was an active sting operation. But a call from Bloomberg, Cuomo, or Obama could have quashed the case in a nano second. The fact that they chose to leave the pervert under the bus speaks volumes. As the notorious scumbag, Rahm Emmanuel puts it, never let a good crisis go to waste. He must have read Naomi Klein's book thinking it was a manual like 1984.

The hyper-inflationists and so many others have this completely assbackwards-

Gold is not the anti-dollar play-it is a currency as is the dollar-I suspect gold might sell down initially maybe as low as the 65 WMA somewhere around 1050-1100 and then a turn around and link up-

Here's april 2009 and your true deflation/risk play-

http://bit.ly/l6Door

http://bit.ly/lTTzbo

Silver is a different breed-although it "is" a currency and always has been-it's largest component is industrial and that will weigh it down-but don't ever think if something like the JPY goes terminal-that silver wont turn currency trade in a rush-

El said..."I still don't feel that this was an active sting operation. But a call from Bloomberg, Cuomo, or Obama could have quashed the case in a nano second."

Well, if they suspect he contracted HIV from the maid, which is a strong possibility at this point, then there's not much reason to cover his ass and keep him on the payroll. These elitists run a tight ship with designated lifeboats, and there's just not enough for people infected with terminal diseases.

Well, you understand why I think FOFOA's views on historical/economic evolution are flawed, right? The Marxian material v. Hegelian ideological approach... that is what part I was really all about. If the debtors vs. savers class conflict paradigm is invalid, then that throws a lot of doubt on the inevitable evolution of a Freegold monetary system. If you understand that, then the rest of part I should be viewed as analogies (quantum decoherence) and explanations (complexity theory) of why the Marxian approach is much better.

Used: "Silver is a different breed-although it "is" a currency and always has been-it's largest component is industrial"

I keep hearing that, and that gold does NOT have much industrial component, and I'm not convinced, either way.

Gold is used quite a bit in upper end electronics; no better corrosion free conductor. Much of the silver industrial use was- in photography. Not anymore.

And- now that China is much more in the international monetary scene; the Chinese have always always looked to silver as a major store of wealth. They wear the gold; gives lots of "Face" points; but the stash the silver, big time.

Would be interesting to see if numbers are available anywhere for silver movement into China, and if it's changed over the last 2 decades.

as I understand it, hiv generally isn't terminal for the rich, and transmission rates are low for each encounter, and particularly so for men. correct me if i'm wrong. unless it was a set-up, I doubt the hiv/aids-status of the maid has anything to do with anything other than fortune.

ash, having liked part one very much I found the 'sophistry' stonewalling you received over at fofoa's blog a shame. bad luck. maybe leroy (hi) can be of help.

I keep hearing that, and that gold does NOT have much industrial component, and I'm not convinced, either way.

Gold is used quite a bit in upper end electronics; no better corrosion free conductor. Much of the silver industrial use was- in photography. Not anymore.

****************I don't think they use much silver in photography anymore--since digital--it does have many other industrial uses/solar/computer for example---the Comex only makes up 5% of its trade-which is why i wonder about all the delirium of a Comex default-Of course gold has industrial/jewelry components but they are small compared to the currency component-

Central banks will be the main driver of gold from here on--imo--although-they've accumulated and dumped it onto the open market before--

http://geology.com/minerals/gold/uses-of-gold.shtml

it's hard to say about China-although as you say-they have a long history of silver saving-"Copper too as of late"

India--is where you separate gold jewelry from gold money-Of course they wear and display it but-to them it is a store of wealth and 2nd ornamental-

I had a link showing falling jewelry demand for the past 10 years-but this blogger is touchy and would accept it-

Yeah I think the social aspects of HIV are much more "terminal" than the physical aspects for rich people. If he contracted it, it will be a permanent mark on his reputation and a constant reminder of what he is accused of doing. Better for the elites if he wears that tattoo in prison, rather than in his capacity as representative of the IMF or some other institution of financial power.

Glad to hear that you liked the article. I've concluded that some of the hardcore "defenders of the faith" at FOFOA's site throw around the term "sophistry" when they can't follow the chain of logic in an argument that is critical of Freegold. Instead of asking for clarification, they assume it is all just clever wordplay with no substance. And after the logic is explained more clearly, you typically never hear from them again regarding that specific argument.

Another interesting thing about those people is that they all tell you they have no personal attachment to the theory of Freegold, or any value judgments of whether it is good or bad, only that they are describing what will happen. Yet, it is very clear that they have invested a lot of time and, more importantly, money (buying physical gold with excess fiat) into the theory. Also, they dismiss issues such as peak oil and resource scarcity because the implications are too "pessimistic" (their word) in terms of future standards of living and consumptive lifestyles, which also suggests that they are morally attached to their ideals prevailing.

For otherwise very well read people, they seem to cling to thoroughly debunked notions of resource substitution via market signals and techno-solutions to energy scarcity. I guess that has been the standard MO of Austrian economists though... get rid of the plainly ridiculous assumptions from neo-classical economics, and hang on to the somewhat ridiculous assumptions that make life a whole lot easier.

"The chance of HIV transmission through a single heterosexual encounter with an infected female for a male is less than 1 in 1,000."

That's all? I've seen people hit longer odds on a craps table over a few hours. Besides, it's the expected value that matters. How much do you stand to lose if you throw your support behind this guy and he ends up testing positive? You also have to factor in the possibility that he has done stuff like this before. I'm confident this isn't his first time taking advantage of a poor African immigrant, and who knows what his colleagues in the upper echelon know about that.

I'm not saying this is the sole basis for their decision to let him take a hard fall, but I don't think it's an insignificant factor for them either.

The truth of the theory that "intelligence is a Lethal Mutation" just might receive confirmation rather sooner than any among us would like. Thanks, AWitW for bringing that idea to our attention. We may not like the idea, but it does improve perspective.

NZS said:"The chance of HIV transmission through a single heterosexual encounter with an infected female for a male is less than 1 in 1,000. That this would even be considered an issue is ridiculous."

It was an important issue during the early days of AIDS (originally called GRID). There was extreme panic. At one point Dr. Stephen Jay Gould was quoted saying that AIDS might carry off a quarter or more of us. No one really knew to what extent and to what sub groups Farr's Law of Epidemiology would apply. Some early research on heterosexual transmission was performed by Nancy Padian who followed a large number of discordant couples. Google if interested.

I doubt it is a factor at all. The whole thing could have been swept under the carpet if desired.

==========

Don't understand this comment at all, unless you are saying that there were no other factors and the decision to leave him under the bus was totally determined by the concept that the banksters were fed up with his willingness to entertain the concept of haircuts to senior bondholders.

I see this as the higher probability. A much lower probability might be that by the time the USA political leaders became aware of the problem and wished to squelch it, it had received too much media attention for this to happen without the danger of a serious political blowback from the peasant class.

In any event, it seems certain at this point that the maid in question was not an accomplice to a sting operation, but a traumatized victim to this MOTU pervert and deserves our respect and sympathy.

I have to admit that I am surprised by the reaction we hear coming out of France. At face value, it appears that France is still the birthplace of the Neanderthal race (my paternal ethnic group), but maybe FB would like to put the issue straight.

I see the probable outcome is that DSK will post serious 7 figure bail on Friday and then jump to France, a la Polanski. Since the headquarters of the IMF are in DC, perhaps he can telecommute.

However, if I may be so bold as to actually mention Ilargi's essay in the comment section, the haircuts are quite inevitable. The bankster delaying tactics can only be measured in weeks or months. European voters are not quite a dumbed down as Usakistanis, at least in terms of recognizing their class interests. The meteoric rise of the True Finn party is a harbinger. Even the American voter was against the TARP by ratios of over 9 to 1. But the new American democracy model, namely one fiat dollar - one vote, made that irrelevant.

The "saving grace" to the AIDS/HIV virus is the necessity of a critical size of the inoculum. Otherwise, it probably could have been transmitted by mosquitos as is dengue. I cringe just thinking about it.

I was having such a positive day, I was running critically low on jaded negativity and was worried about a Mental Meltdown from a cooling system failure.

I'm sooo relieved and comforted to know the French Brain Trust is a living proof that intelligence is in fact a lethal mutation. Phew, for a minute there, I thought a large fatal dose of highly refined French Competencium (Cpt - 120) would neutralize then seize up my sense of Irony.

Thanks again and remember don't take any wooden nickels, they probably have Tungsten cores._

Now that it is known tungsten is an effective radiation shield, wooden nickels with tungsten cores would be very valuable. Quite naturally, the biggest threat to wooden nickels as a store of value is, of course, termites. :)

Gainsbourg was another sex-obsessed Ashkenazi. The only difference was that the young ladies queued up for him and there never was any hint of violence.

I still think his best song was Je t'aime moi non plus. As a teenager, I must have danced it dozens of times in Spain when it came out in '69. Only years later did I understand that the main, highly repetitive, refrain was "I go and I come between your kidneys" - does not sound so good in English though.

From his Wiki entry:His next song for Gall, Les Sucettes ("Lollipops"), caused a scandal in France: Gainsbourg had written the song with double-meanings and strong sexual innuendo, of which the singer was apparently unaware when she recorded it. Whereas Gall thought that the song was about a girl enjoying lollipops, it was really about oral sex. The controversy arising from the song, although a big hit for Gall, threw her career off-track in France for several years.

If this guy had had the misfortune to have been born in an Anglo-Saxon country, he would have been locked up as a child-molester - loads of his girls were under-age. However, I really like him because of his nuttiness.

I was living in Paris when he died and I well remember the hundreds of teenage girls who were in tears outside his house.

This is great, I love it. This should be considered the highlight of Whitney Houston's career, having a genius like Serge Gainsbourg take a few seconds to drunkenly tell her that he'd fuck her if given the chance. What else is she gonna remember: how a team of songwriters and marketing majors gave her a career?; how she predictably became a joke in time?; how she threw it all﻿ away by smoking crack and fucking another loser like Bobby Brown for years? She should've fucked Serge Gainsbourg...

Sad fact is that HIV/AIDS is a disease of the poor, just like most other serious diseases... they want to keep it that way.

Frankly, I think that DSK just brought a lot of neg publicity to a traditionally secretive institution at the exact wrong time (while the EU implodes). IF he has HIV, then that would just seal his fate (literally and figuratively) in the eyes of his owners.

So it's OK for police to enter 'your castle' even if it is illegal and without a warrant. And resisting the illegal home invasion by police is a crime.

Well, seems all kinds of bedrock laws were just meant to be changed.

Meanwhile on the DSK front, a poll in France said half of the polled people thought DSK was set up.

The photo link by Nassim is quite a knockout. Is that a professional portfolio photo?

Many more news articles from France expressed outrage at the 'cruelty' of seeing DSK paraded in handcuffs rather than discretely lead out the side door away from the media. An affront to decency.

Hmm, this might actually be good for his presidential run.

Maybe the whole thing will have the complete opposite effect and provide the perfect segue to transition from assaulting whole countries with the IMF apparatus of Thuggery to just concentrating on assaulting the French exclusively. Sounds like a win-win all around.

When France runs low this summer on water to cool their nuclear reactors due to the severe drought DSK can extort the water from the Swiss with the expertise he learned as head of the IMF racket.

They could try illegally appropriating water without permission from the Germans but that hasn't worked out well for the French since Napoleon ;>)_

Bush wasn't gonna turn over any evidence (b/c he didn't have any, perhaps?) and so the poppy protection team invaded Afganistan and drug laundering profits and CIA slush funds have been swelling.

This post wouldn't be complete that every single major Western terror attack can be linked directly back to Western intelligence - and even the one Mumbai bombings, too.

Oh, and Al Qaeda's most active operative, Anwar al Awlaki (masters in educational organization from San Diego State University) was dining with the Secretary of the Army at the Pentagon weeks after 911.

Can't forget that tid bit.

Almost forgot, American tax payers are now rearming Al Qaeda in Libya. Yes, Al Qaeda is good now. Well, at least that Al Qaeda.

It is also interesting that three of Al Qaeda's top three leaders include three America born people, one the grandson of an ADL founder and former attacker of Muslims.

Hmmmm, maybe, just maybe, he's still attacking Muslims, just in a more creative way?

@Stoneleigh, from day one you have said that the price of oil will drop. You gave a figure but I can't remember it ( senior's moment). I haven't really been on board with that conclusion for the reason that " peak oil " had perhaps inflated my expected impact of supply and demand.The following quote from a ZH article, "Raging Alberta Wildfires Depress Canadian Crude Production, Have Little Impact On Prices","For about a decade now neither supply and demand have actually been factors in determining equilibrium prices,which in turn is defined almost exclusively by the AMOUNT OF FREE LIQUIDITY IN THE SYSTEM." Bingo!I first heard that idea on TAE! I am overcome with gratitude for Ilargi, Stoneleigh and this board!Back then I was a rare newbie, still learning to say "Liguidity " without stumbling. " Illiquidity " takes more practice:)

This post wouldn't be complete that every single major Western terror attack can be linked directly back to Western intelligence - and even the one Mumbai bombings, too.

=========

Yeah the most important guy, who wasn't killed in the Mumbai attack, was an American intelligence operative. He wasn't killed because he didn't participate in the raid itself. For some reason, this was not publicized in the MSM.

Nassim

Thanks for the link. I have to admit that I was surprised at just how pretty DSK's victim is (or was as these pictures are not of a 35 year old woman).

Re DSK as a sting operation. He had to resign his IMF position soon anyway to run for the presidency of France. Unless the oligarchs were in a big hurry, it would seem unnecessary to set him up at this point. Unless, of course, they didn't want him as president of France. As to the case being made regarding the information being relayed to political operatives in France before he was even arrested on the plane, I don't find it that persuasive. This was a swank, French hotel. Word of the rape was undoubtedly the talk of the hotel within minutes and some enterprising politico relayed it for favors to where it could do the most harm - Sarko's machine.

I found the link to HIV transmission disappointing. Everything I had read indicated the hetero transmission rate male to female was much higher than female to male. The M=>F was taken from USA and European data while the F=>M was taken from African and SE Asian data. I am skeptical.

Scandia

The etymologies of liquidity and pissant are connected. Both involve the owners pissing on the serfs.

I don't remember if I found the following on this site or elsewhere. Because many fellow Canucks comment on this site I thought it worth posting (again?). It is a grandiose scheme to take vast amounts of fresh water from Canada and distribute part of it to Canada and the rest to the US:

http://aquadoc.typepad.com/waterwired/2008/03/canada-to-usa-w.html

The proposed payment would be a huge ripoff for Canada - at only $186 per acre-foot! In some places in the western USA, water rights have gone for more than $40,000 per acre-foot.

I remember when something like this was planned in the US years ago(I think that it was to bring McKenzie River water down to California). What was interesting was that all the planning was done without consulting Canada.

About those Alberta Wildfires...sends a chill of terror up my spine..."Wildfires have destroyed ( 460 acres ) this year...Fires in the past 72 hours burned the same amount of forest as was destroyed in all of last year. "Well, its only early May!It is further quoted that " The facilities are not at risk." Whoops...And what if the tar sands were at risk of becoming an inferno? Like how would that be? I just can't imagine the tar sands on fire.Would it be a huge explosion or would it burn unextinguishable for a hundred years? Maybe it is fire proof?Do tailing ponds burn?Starting to feel like another Faustian bargain as in the nuclear question.Adding to the strangeness is Obama's speech that he is going to command the cultural future of MENA. The oil to fuel this big stick/carrot approach is oil from the tar sands threatened by a fire gone wild, gone rogue...

@Robert, I was about to go ape shit on reading your comment about water rights. Then I had instant recall that Canada is on the periphery of a wounded empire. We are the closest periphery to provide life blood, water. What can we do about it with a majority VICHY government?

"Meanwhile on the DSK front, a poll in France said half of the polled people thought DSK was set up."

-----------------

My wife pointed out that one should keep in mind that Sarko is very pro-American. Could it be a collusion between TPPTB in France and the US to keep DSK off the ballot? DSK is likely to not be so pro-American. In a running with DSK against Sarko, it is very likely that DSK would have won because the people have had it with Sarko.

The biggest opposition to Sarko would then be Marine Le Pen, daughter of Jean-Marie Le Pen. Le Pen and his daughter are members of the political party Front National which is strongly racist and Fascist.

With DSK out of the way, the preliminary run for election would probably give a significant number of votes for Marine. (France has a strong multiparty system: http://en.wikipedia.org/wiki/French_political_parties )

If there is no clear cut victory for Sarko, a second election would be held with Sarko facing Marine.

It is very likely Sarko would win the second running similar to what happened when President Chirac ran for re-election in 2002. The people of France were totally shocked and voted for Chirac even though no one wanted him in office again. France did and does not want anything to do with Le Pins' Fascist-racist ways.

Granted it's not a World War (yet) and the U.S. aren't occupying storm troopers (yet) but taking Canada's fresh water and fossil fuel then throwing pocket change on the table with little or no consultation with Canadians is like treating Canuckistan like it was the parking valet rather than a sovereign nation.

Harper aids and abets this in true Lap-Poodle style.

Suspending Parliament was very Quisling like. Even Obummer hasn't worked up the Nads to suspend Congress. Brown Nosing the U.S. will take you places Stephan.

Speaking of the late Mr. Quisling, keep your eye on the growing split between Putin and Medvedev, and notice the western MSM bias in the reporting. But Putin is no JFK (with his early years in the KGB), and Medvedev is no LBJ. I doubt M is going to come out of this the winner and Putin dead. I see a reliance between China and Russia which has nothing to do with theoretical economic systems, but rather nationalism in the better sense of the word, meaning not letting global bankers f**k over your people. The privilege should be reserved for the locals.

Also, it is becoming more and more obvious that the current plan of Obama bin Lying and his puppeteers is a very major war with Pakistan. But somehow they have to steal their nuclear arsenal first, and that ain't going to be easy as the Pakistani military is well aware of their intension. Losing their nukes could lead to a joint USA (NATO :-)/India invasion which the Chinese would not take sitting down. May we live in interesting times.

1.The retirement fund collects from its members on every pay check.2. The retirement fund buys gov. bonds.3. Of course, the gov. spent that money that it received for those bonds.4. But ... but there is an account that the retirement fund has which says that there are all of those gov. bonds.5. hehehe So_O_O_O the gov. makes a bookeeping entry, (borrows those bonds) and it can spend the same money all over again.

Don't you wish that your accountant could find ways for you to borrow the money that is in your pension fund and then let you borrow money from yourself so that you could spend it for the second time.jal

I'm cracking up! Matthew Wald, the nuke journalist for the NYT- refused to post a comment of mine some weeks ago that linked to Arnie Gundersen- but today- Wald is citing Gundersen as a "nuclear consultant"!

The M=>F was taken from USA and European data while the F=>M was taken from African and SE Asian data. I am skeptical.

Yes, it is amazing how after all this time they don't seem to have any decent data.

Nevertheless, I suspect that it is progressively getting more infectious. Initially, one had to try really hard to get infected - as the virus really belonged to other species. Over time, the more "successful" strains are bound to take over. It is constantly evolving in each single human body and that is how they can find who-infected-who in criminal cases.

This is a slow process but it is a relentless one. Of course, it may not be a smooth process as the virus may have a breakthrough - get in via a parasite, for example. Some of us will find out.

I am afraid I cannot set anything straight because I find the entire DSK story very bizarre. The idea of him chasing a chamber maid around his suite strikes me as highly improbably, but not impossible.

A good friend, who worked 16 years in the financial sector in NYC, has written up a fairly convincing set of arguments as to why it was entrapment, but he also notes that DSK is the type of person particularly susceptible to falling into a trap.

As for the French press, do not judge the French by the press. Similarly, I would not judge the U.S. population on the basis of the NY tabloids. I feel for Sinclair. She was always a very astute journalist, pushing people enough that they felt they had to respond to the question, but not so much that they could simply rebuff her. Back in the 1980s, she had a programme (I think on Sunday evenings) interviewing political figures that was always interesting to watch. She had marvellous eyes that twinkled with intelligence.

About Gainsbourg, he wrote many great songs, but I always remember his burning a 500-franc bill on television. He had a particular manner that irritated many people to no end. They simply could not see the intent beyond the provocative flourish.

Some BigBrother "news" as Bill Clinton calls for a internet police. More bizarre angle from CDC ie. Center for Disease Control: beware zombie hoards! at least the link claims that was posted on cdc.gov...

"A good friend, who worked 16 years in the financial sector in NYC, has written up a fairly convincing set of arguments as to why it was entrapment..."

Is that available online or can you share the arguments here?

I would like to hear how you "entrap" someone into physically battering someone else... for now, I'm assuming he isn't using the term in a legal sense, and means the entire story was fabricated, or at least the gory details were greatly embellished.

Have you not yet observed that it's all Hollywood all the time now? Any resemblance to actual persons and events in purely coincidental. For example, whether or not actual trained seals killed an actual OBL has been shown to be completely irrelevant to the rest of the plot. The Taliban and Al Qaeda are just as happy to say it happened as the known to still be living OBL, Obummer bin Lyin.

The same with DSK. Whether it was unprovoked rape, a setup or some combination thereof, does not really matter. The plot twist is in the can and the crew is already moving to the next location. Shooting will continue until it doesn't.

No release date has even been rumored yet, but this one is guaranteed to be a Block Buster. Why heck, maybe even a Globe Buster.

Please let's show a little more Internet sophistication least the low life start asking us here for our SS# and banking passwords.

The Zombie Hoard is a throughly enjoyable and quite sophisticated spoof (where was Jamie Dimon?) of the CDC, but the people who put it on have nothing to do with the government beyond enjoying a good, Onion like satire.

The way URL's work, anyone can buy a .gov address if it is not taken. And few are compared to .com or .net. The real URL of the CDC always starts.

http://www.cdc.gov

This is taken and a spoofer or scammer cannot buy it.

As you get into the CDC web page, notice how the URL develops, for example

http://www.cdc.gov/parasites/chagas/

A very nasty disease of Latin America

Now notice the address of our zombie hoards:

http://emergency.cdc.gov/socialmedia/zombies_blog.asp

Anyone could and did buy this address. To make their page more comprehensive and less Herculean, they often link back real topics to the real CDC. You can tell this because then the "emergency" in the URL disappears.

Pay attention to URL's if you do anything involving money on the Internet or you might find your credit card maxed out or your checking account empty. I frequently get sophisticated PayPal scams. Never respond directly for a request for your information. Always get back by canceling and going back in to the page from **your** bookmark list, not the link that contacted you.

Sorry, but you are spreading misinformation. Domains subdivide and read from right to left. Anything to the left of .cdc.gov is a subdomain of cdc.gov and cannot be owned by anyone else.

However, the internet is a weird space and domains can be hosted anywhere. Here are Domain Name Service address resolutions for www.cdc.gov and emergency.cdc.gov, which are actually aliases. They are shown to be subdomains of edgesuite.net, which is registered to Akamai Technologies, which happens to be an internet hosting company registered as akamai.net.

The Gov owns the domain, but it is hosted on private servers.

host www.cdc.govwww.cdc.gov is an alias for www.cdc.gov.edgesuite.net.www.cdc.gov.edgesuite.net is an alias for a1433.g.akamai.net.a1433.g.akamai.net has address 204.10.29.83a1433.g.akamai.net has address 204.10.29.113

host emergency.cdc.govemergency.cdc.gov is an alias for www.bt.cdc.gov.www.bt.cdc.gov is an alias for www.bt.cdc.gov.edgesuite.net.www.bt.cdc.gov.edgesuite.net is an alias for a1423.g.akamai.net.a1423.g.akamai.net has address 69.22.162.202a1423.g.akamai.net has address 69.22.162.193

Nassim said...Nevertheless, I suspect that it is progressively getting more infectious. Initially, one had to try really hard to get infected - as the virus really belonged to other species. Over time, the more "successful" strains are bound to take over. It is constantly evolving in each single human body and that is how they can find who-infected-who in criminal cases.

Yeah, there are some big industries that would like you to believe such nonsense.

The unwashed Spanish masses are getting restless. An apolitical group called M-15 (ref. to demonstrations by youth on May 15th), who are up to their cojones with the incompetent, corrupt, out-of-touch political class, have taken over the Puerta del Sol central plaza in Madrid and have been joined in other major cities by disaffected citizens. Local/provincial elections are being held Sunday so normally ¨political¨ activity would be prohibited, and the Provincial Election Board has decided ¨There are no serious or extraordinary causes justifying the calling of the event 24 hours in advance, given that the elections were called on 29 March 2011, and that asking for responsible voting may affect the electoral campaign and the free exercise of the right to vote.¨ (my bold)

Normally, the left just wouldn´t vote out of sheer disgust with their side, so the socialists are on TV wringing their hands and empathizing with the protesters in the most patronizing way possible. And the conservatives can´t even conceive of independent thought leading to action so they´re clutching their pearls and worrying loudly about democracy while muttering about leftist conspiracies being behind it all.

George Washington, a regular contributing writer at Zero Hedge, who has been specializing lately in scientific topics including some good analysis on Fukushima, has really kicked up the ant hill tonight with an extensive article on why did WTC7 really collapse on 9/11.

Yeah, I saw that article. The Sunstein brigade certainly came out for it too, didn't they? There were the tiny-nukers, the directed-energy-beamers, and the unwashed unbelievers..

By now it's obvious that there will be no official investigation, at least not by this regime. But kudos to George Washington, eh? I thought he took care of a lot of the minor quibbles with this comment.

A comment I got from Justin Richie, who is in Spain, and who runs a great podcast site called The Extra Environmentalist (www.theextraenvironmentalist.com):

As I've been walking around the streets of Granada, Spain over the last few days I'm seeing the protests grow every day even though police are trying their best to quiet things among the students here. People were marching with megaphones today and handing out flyers tell all of us to gather in the town square. Much of the pressure here is in anticipation of the election that's coming soon but all the candidates are still thinking within the mainstream paradigm. In the very near future, Spain will have to deal with its debt and that likely means a bailout from the EU with the restructuring required, now that the youth are becoming more and more organized after frustration with low wages and 40%+ unemployment, Spain has everything in place to become the first European nation to experience a full scale revolution.

Spain has everything in place to become the first European nation to experience a full scale revolution.

===========

A revolution means mainly to let the senior bond holders of the Spanish banks and maybe holders of Spanish sovereign debt, eat their own malinvestments. This means mainly outside banks and central banks.

All the Spanish banks are ultrazombies from their ridiculous RE bubble, only surpassed by Ireland. What I don't understand is the following. Since Spanish sovereign debt is still just about 60% of GDP, and since the government has not, as of **yet** TTBOMK transferred their bad investments to the taxpayer a la the Irish (and UK and USA) GBC (government-bankster complex), why exactly does Spain need a bailout? Is it because the private money knows how f**ked their private banking sector is and is unwilling to loan money against sovereign debt at a "reasonable" rate, believing that the "socializing" of their zombie banks is inevitable? So Spain has a "reasonable" sovereign debt to GDP ratio at the moment, even if the economy is the pits, but can't finance their current deficit?

It would seem to me that the greatest focus of the protests should be to prevent the socialization of the debts of the private banks. So far, only Iceland has done that due to a technicality in their constitution allowing a moral, titular president to throw the question (twice) into a referendum.

"A revolution means mainly to let the senior bond holders of the Spanish banks and maybe holders of Spanish sovereign debt, eat their own malinvestments. This means mainly outside banks and central banks."

Yeah, but also equity holders of those institutions, which basically includes Spanish homeowners, and high-level employees. I think that would be the first steps of a regional social revolution, in so far it would ultimately lead to the demise of the financial capitalist model in Europe, and that could quickly spread to other parts of the world.

I believe a country like Spain would be partially bailed out soon, to keep things together a bit longer until more debt can be passed on to EU taxpayers a la Ireland/US. Since total debt to GDP is only 60%, they can spin together some token "plan" to reduce annual deficits over time, while still using fiscal programs to support the private economy right now. However, as Coco and Justin pointed out, the highly unemployed and desperate youth there may not be willing to live through all of that without causing some major social disruptions a la "The Weathermen".

Oh and re: why Spain would need a public bailout, I think it's more a function of their elevated deficit/GDP ratio which is more than 3x the required 3% level, and the perception that it will only increase to keep the Cajas remotely solvent. The prospect of China and private investors coming to their rescue is being revealed as ridiculous, as should have always been obvious...

I believe the rules of bankruptcy around the world are that equity goes to zero before bondholders get trimmed, so that goes without saying.

Well, as I&S always say, even if tomorrow (when we experience the Rapture, 6 PM local time - be sure to wear clean underwear), the best of all policies are instituted for the serfs, we are headed for very hard times. Blowing shit up won't help. But stopping the transfer of the wealth to the uberrich is the first step to making things less bad.

Greenpa

I haven't managed a post without a serious typo for months. But I am studying Hoards, Hordes, and Hos and hope to do better.

@el gallinazoOK, now my question is:Were there any planes? Because I`m seriously doubting pretty much anything at this point.Oh and if you want to keep up with the latest, there are stabilized videos (on YouTube) of the fall of the buildings, which, let`s just say, offer a much clear view (being stabilized and all).I understand Ilargi`s position because I did not want to touch this subject with a 10 foot pole in the past, but recent events and evidence has tiped me over your side.

I sort of promised Ilargi a couple of years ago that I would not participate in a thread on 9/11 beyond giving brief heads up links when appropriate for interesting developments and letting the commentariat know, when appropriate, that I don't accept the government conspiracy box cutter theory and that it had to be an inside job for obvious benefits including destroying the constitution, scaring the shit out of the peons, funding the MIC and sequestering the remaining oil.

If you have specific questions, contact me at hpaulfuchs at the commercial company of gmail.